A provincial view of global imbalances: regional capital flows in China

Samuel Cudré () and Mathias Hoffmann

No 162, ECON - Working Papers from Department of Economics - University of Zurich

Abstract: We model capital flows among Chinese provinces using a theory-based variance decomposition that allows us to gauge the importance of various channels of external adjustments at the regional level: variation in intertemporal prices—domestic and international interest rates and the real exchange rate—and intertemporal variation in quantities (cash flows of output, investment and government spending). We find that our simple framework can account for around 85 percent of the variation in regional capital flows over the 1985-2010 period. Our results suggest that the relative importance of private and state-owned enterprises, a province’s level of integration into the world economy and its sectoral composition play an important role for external adjustment vis-à-vis the rest of China and the world. Specifically, we find strong empirical support for the view that differential access of private and state-owned enterprises to finance is a key driver of China’s surpluses. We discuss implications of our results for global imbalances in capital flows.

Keywords: China; Chinese provinces; capital flows; current account; global imbalances; external adjustment; present-value models; regional business cycles (search for similar items in EconPapers)
JEL-codes: F30 F32 F40 (search for similar items in EconPapers)
Date: 2014-06
New Economics Papers: this item is included in nep-cna, nep-opm and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: A provincial view of global imbalances: regional capital flows in China (2017)
Working Paper: A provincial view of global imbalances: regional capital flows in China (2016)
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