Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/111223 
Year of Publication: 
2014
Series/Report no.: 
Working Paper No. 162
Publisher: 
University of Zurich, Department of Economics, 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.
Subjects: 
China
Chinese provinces
Capital flows
Current account
Global imbalances
External adjustment
Present-value models
Regional business cycles
JEL: 
F30
F32
F40
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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