IDEAS home Printed from https://ideas.repec.org/a/bla/deveco/v59y2021i4p351-370.html
   My bibliography  Save this article

The Political Economy of the Differential Regional Effects of Monetary Policy: Evidence From China

Author

Listed:
  • Changjun Liao
  • Shengquan Wang

Abstract

Previous studies have argued that heterogeneities across regions in economic and/or financial variables drive the differential regional effects of monetary policy. In this study, we conduct a political economy analysis of the regional effects of China's monetary policy (i.e., economic competition between local governments) as Chinese‐style fiscal decentralization and China's promotion tournament for officials produce regional effects. Furthermore, we use a threshold model and provincial‐level data from 2005 to 2018 to test our hypotheses and estimate exogenous monetary policy shocks. We find that (1) economic competition between regions is a key driver of the asymmetric regional effects of monetary policy and (2) the fiercer the competition a province faces, the less effective the monetary policy is in shaping economic growth there. Our conclusion remains unchanged when we change the threshold variable and divide the sample into three subregions.

Suggested Citation

  • Changjun Liao & Shengquan Wang, 2021. "The Political Economy of the Differential Regional Effects of Monetary Policy: Evidence From China," The Developing Economies, Institute of Developing Economies, vol. 59(4), pages 351-370, December.
    • Handle: RePEc:bla:deveco:v:59:y:2021:i:4:p:351-370
    DOI: 10.1111/deve.12272
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/deve.12272
    Download Restriction: no
    File URL: https://libkey.io/10.1111/deve.12272?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Chen, Zhuo & He, Zhiguo & Liu, Chun, 2020. "The financing of local government in China: Stimulus loan wanes and shadow banking waxes," Journal of Financial Economics, Elsevier, vol. 137(1), pages 42-71.
    2. Kaiji Chen & Jue Ren & Tao Zha, 2018. "The Nexus of Monetary Policy and Shadow Banking in China," American Economic Review, American Economic Association, vol. 108(12), pages 3891-3936, December.
    3. Olivier Blanchard & Andrei Shleifer, 2001. "Federalism With and Without Political Centralization: China Versus Russia," IMF Staff Papers, Palgrave Macmillan, vol. 48(4), pages 1-8.
    4. Jin, Hehui & Qian, Yingyi & Weingast, Barry R., 2005. "Regional decentralization and fiscal incentives: Federalism, Chinese style," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1719-1742, September.
    5. Bruce E. Hansen, 2000. "Sample Splitting and Threshold Estimation," Econometrica, Econometric Society, vol. 68(3), pages 575-604, May.
    6. Li, Hongbin & Zhou, Li-An, 2005. "Political turnover and economic performance: the incentive role of personnel control in China," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1743-1762, September.
    7. He, Qichun & Sun, Meng, 2014. "Does fiscal decentralization promote the inflow of FDI in China?," Economic Modelling, Elsevier, vol. 43(C), pages 361-371.
    8. LIU, Mingxing & XU, Zhigang & SU, Fubing & TAO, Ran, 2012. "Rural tax reform and the extractive capacity of local state in China," China Economic Review, Elsevier, vol. 23(1), pages 190-203.
    9. McKinnon, Ronald I, 1992. "Spontaneous Order on the Road Back from Socialism: An Asian Perspective," American Economic Review, American Economic Association, vol. 82(2), pages 31-36, May.
    10. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    11. Xiaohui Guo & Tajul Ariffin Masron, 2017. "Regional Effects Of Monetary Policy In China: Evidence From China'S Provinces," Bulletin of Economic Research, Wiley Blackwell, vol. 69(2), pages 178-208, April.
    12. Song, Yang, 2013. "Rising Chinese regional income inequality: The role of fiscal decentralization," China Economic Review, Elsevier, vol. 27(C), pages 294-309.
    13. Gerald Carlino & Robert Defina, 1998. "The Differential Regional Effects Of Monetary Policy," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 572-587, November.
    14. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Makram El-Shagi & Kiril Tochkov, 2024. "Regional Effects of Monetary Policy in China," CFDS Discussion Paper Series 2024/1, Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Qichun He & Meng Sun, 2018. "Does Fiscal Decentralization Increase the Investment Rate? Evidence from Chinese Panel Data," Annals of Economics and Finance, Society for AEF, vol. 19(1), pages 75-101, May.
    2. Gyourko, Joseph & Shen, Yang & Wu, Jing & Zhang, Rongjie, 2022. "Land finance in China: Analysis and review," China Economic Review, Elsevier, vol. 76(C).
    3. He, Qichun, 2015. "Fiscal decentralization and environmental pollution: Evidence from Chinese panel data," China Economic Review, Elsevier, vol. 36(C), pages 86-100.
    4. Wei Xiong, 2019. "The Mandarin Model of Growth," Working Papers 2019-10, Princeton University. Economics Department..
    5. Cai, Yue, 2021. "Expansionary monetary policy and credit allocation: Evidence from China," China Economic Review, Elsevier, vol. 66(C).
    6. Wang, Li & Menkhoff, Lukas & Schröder, Michael & Xu, Xian, 2019. "Politicians’ promotion incentives and bank risk exposure in China," Journal of Banking & Finance, Elsevier, vol. 99(C), pages 63-94.
    7. Cao, Chunfang & Li, Xiaoyang & Xia, Changyuan, 2021. "The complicit role of local government authorities in corporate bribery: Evidence from a tax collection reform in China," China Economic Review, Elsevier, vol. 65(C).
    8. Chen, Zhuo & He, Zhiguo & Liu, Chun, 2020. "The financing of local government in China: Stimulus loan wanes and shadow banking waxes," Journal of Financial Economics, Elsevier, vol. 137(1), pages 42-71.
    9. Tsang, Andrew, 2021. "Uncovering Heterogeneous Regional Impacts of Chinese Monetary Policy," MPRA Paper 110703, University Library of Munich, Germany.
    10. Li, Lei & Luo, Changtuo, 2023. "Does administrative decentralization promote outward foreign direct investment and productivity? Evidence from China," Economic Modelling, Elsevier, vol. 124(C).
    11. Xiaodong Chen & Haoming Mi & Peng Zhou, 2024. "Whether to decentralize and how to decentralize? The optimal fiscal federalism in an endogenous growth model," Applied Economics, Taylor & Francis Journals, vol. 56(29), pages 3499-3516, June.
    12. Allen, Franklin & Qian, Jun & Qian, Meijun, 2018. "A Review of China’s Institutions," CEPR Discussion Papers 13269, C.E.P.R. Discussion Papers.
    13. Mengting Ruan & Xiaolu Zhao, 2022. "Fiscal Pressure, Policy Choices and Regional Economic Disparity: Evidence from a Natural Experiment in China," Sustainability, MDPI, vol. 14(19), pages 1-13, September.
    14. An, Heng & Chen, Yanyan & Luo, Danglun & Zhang, Ting, 2016. "Political uncertainty and corporate investment: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 36(C), pages 174-189.
    15. Lu Ming & Zhao Chen & Yongqin Wang & Yan Zhang & Yuan Zhang & Changyuan Luo, 2013. "China’s Economic Development," Books, Edward Elgar Publishing, number 14502.
    16. Caldeira, Emilie, 2012. "Yardstick competition in a federation: Theory and evidence from China," China Economic Review, Elsevier, vol. 23(4), pages 878-897.
    17. repec:hal:spmain:info:hdl:2441/50oojv2kpq972a1928dqj0v6at is not listed on IDEAS
    18. Petra Persson & Ekaterina Zhuravskaya, 2016. "The Limits of Career Concerns in Federalism: Evidence from China," Journal of the European Economic Association, European Economic Association, vol. 14(2), pages 338-374.
    19. Allen, Franklin & Gu, Xian & Li, C. Wei & Qian, Jun “QJ” & Qian, Yiming, 2023. "Implicit guarantees and the rise of shadow banking: The case of trust products," Journal of Financial Economics, Elsevier, vol. 149(2), pages 115-141.
    20. repec:spo:wpmain:info:hdl:2441/50oojv2kpq972a1928dqj0v6at is not listed on IDEAS
    21. repec:zbw:bofitp:2021_015 is not listed on IDEAS
    22. Bo, Shiyu, 2020. "Centralization and regional development: Evidence from a political hierarchy reform to create cities in china," Journal of Urban Economics, Elsevier, vol. 115(C).
    23. Han, Li & Kung, James Kai-Sing, 2015. "Fiscal incentives and policy choices of local governments: Evidence from China," Journal of Development Economics, Elsevier, vol. 116(C), pages 89-104.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:deveco:v:59:y:2021:i:4:p:351-370. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/idegvjp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.