Yi Huang (Geneva Graduate Institute) speaks at the ESM

"Public Debt and Private Firm Funding: Evidence from Chinese Cities"

Abstract: In China, local public debt issuance between 2006 and 2013 crowded out investment by private manufacturing firms by tightening their funding constraints, while it did not affect state-owned and foreign firms. Using novel data for local public debt issuance, we establish this result in three ways. First, local public debt is inversely correlated with the city-level investment ratio of domestic private manufacturing firms. Instrumental variable regressions indicate that this link is causal. Second, local public debt has a larger negative effect on investment by private firms in industries more dependent on external funding. Finally, in cities with high government debt, firm-level investment is more sensitive to internal funding, also when this sensitivity is estimated jointly with the firm's likelihood of being credit-constrained. Altogether, these results suggest that the massive public debt issuance associated with the post-2008 fiscal stimulus curtailed private investment thus weakening China's long-term growth prospects.

Bio: Professor Huang is Assistant Professor of International Economics and Pictet Chair in Finance and Development at the Graduate Institute of International and Development Studies. Professor Huang was an economist in the Research Department of the International Monetary Fund (IMF) and a research associate of Globalization and Monetary Policy Institution in the Federal Reserve Bank of Dallas. He also has been a visiting PhD student at the University of California, Berkeley, a research fellow at the Hong Kong Institute for Monetary Research, as well as the visiting assistant professor at the London Business School. Professor Huang serves on the Council on Global Economic Imbalances at the World Economic Forum.

This is an ESM research internal seminar. If you would like to attend, please write an email to ESMresearch@esm.europa.eu (link sends e-mail)