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Has China's Interregional Capital Mobility Been Low? A Spatial Econometric Estimation of the Feldstein-Horioka Equation

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  • Hashiguchi, Yoshihiro
  • Chen, Kuang-hui

Abstract

We conducted a Feldstein-Horioka test for the degree of China's inter-provincial capital mobility each year from 1978 to 2007 using the spatial error model (SEM), a model of spatial econometrics considering spatial dependence, and a data set reflecting revision of historical national and provincial accounts after China's first economic census in 2004. We found that the likelihood ratio test rejected the null of no spatial error correlation, or the appropriateness of the standard OLS model (OLSM), for 17 out of 30 years and that the Akaike information criterion selected the SEM over the OLSM for 20 years. Our estimations demonstrate that the mobility was high until the late 80's, fell to a bottom in the mid-90's, recovered, peaked in the early 2000's, and has weakened recently, even though it has been argued that mobility has been low since 1978 reform, leaving the impression that it has consistently been low.

Suggested Citation

  • Hashiguchi, Yoshihiro & Chen, Kuang-hui, 2010. "Has China's Interregional Capital Mobility Been Low? A Spatial Econometric Estimation of the Feldstein-Horioka Equation," MPRA Paper 24595, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:24595
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    References listed on IDEAS

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    7. Boyreau-Debray, Genevieve, 2003. "Financial intermediation and growth - Chinese style," Policy Research Working Paper Series 3027, The World Bank.
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    Cited by:

    1. Qian, Xianhang & Wang, Ying & Zhang, Guangli, 2018. "The spatial correlation network of capital flows in China: Evidence from China's High-Value Payment System," China Economic Review, Elsevier, vol. 50(C), pages 175-186.
    2. Wang, Shoukun, 2016. "China's interregional capital mobility: A spatial econometric estimation," China Economic Review, Elsevier, vol. 41(C), pages 114-128.
    3. Saileshsingh Gunessee & Cheng Zhang, 2022. "The economics of domestic market integration," Journal of Economic Surveys, Wiley Blackwell, vol. 36(4), pages 1069-1095, September.

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    More about this item

    Keywords

    fiscal and financial reform; Feldstein-Horioka paradox; spatial econometrics;
    All these keywords.

    JEL classification:

    • P21 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Planning, Coordination, and Reform
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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