Connect to invest: Hometown ties, intercity capital flows, and allocative efficiency in China

Xiangyu Shi and Yu Liu

MPRA Paper from University Library of Munich, Germany

Abstract: This paper establishes a novel argument that social networks among local politicians reduce spatial frictions of corporate investment. We leverage the replacement of city officials and the resulting exogenous variations of hometown ties among city party secretaries to examine their impact on intercity capital flows in China. The results provide strong evidence that such connections significantly enhance capital flows between cities. These social bonds appear to effectively lower entry barriers for businesses and offer sustained support to connected firms without negatively impacting unconnected ones. Our research indicates that the increase in hometown-related investments does not displace non-hometown-related investments.

Keywords: hometown ties; capital flow; transaction costs; rent seeking; economic growth (search for similar items in EconPapers)
JEL-codes: D2 D7 G1 O1 (search for similar items in EconPapers)
Date: 2024-07
New Economics Papers: this item is included in nep-cna, nep-fdg, nep-inv, nep-net and nep-ure
References: Add references at CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/121412/1/MPRA_paper_121412.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:121412

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().