The role of provincial government spending composition in growth and convergence in China

Luintel, Kul B and Matthews, Kent and Minford, Lucy and Valentinyi, Akos and Wang, Baoshun (2020) The role of provincial government spending composition in growth and convergence in China. Economic Modelling, 90 . pp. 117-134. ISSN 02649993

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Abstract

China’s development policy since 1978 has differed across regions. With rapid aggregate growth has come widening regional inequality. The fiscal decentralisation reforms in 1994 shifted political pressure onto provincial officials to boost local growth through local public investments. These investments affect regional convergence by counteracting regulatory frictions in factor accumulation, and can also determine steady-state growth. However, the effect of public spending allocations across physical and human capital on growth and convergence processes is empirically unexplored for Chinese provinces. We take provincial time-series data on public spending by category, finding local public spending and its components augment convergence rates differently across regions. Spending on education and health contributes significantly more to growth and convergence than capital spending, confirming that the public capital-spending bias is not a local growth-optimising strategy. We suggest a policy of aligning local government promotion incentives to human capital targets to correct local resource misallocation.

Item Type: Article
Keywords: China ;Growth convergence; Fiscal policy; Capital expenditure; Public spending composition
Schools/Departments: University of Nottingham Ningbo China > Faculty of Business > Nottingham University Business School China
Identification Number: https://doi.org/10.1016/j.econmod.2020.04.024
Depositing User: Zhou, Elsie
Date Deposited: 10 Jun 2020 09:01
Last Modified: 10 Jun 2020 09:01
URI: http://eprints.nottingham.ac.uk/id/eprint/60860

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