Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/111221
Authors: 
Cudré, Samuel
Year of Publication: 
2014
Series/Report no.: 
Working Paper Series, University of Zurich, Department of Economics 161
Abstract: 
While China has been pivotal in discussions and academic research on global imbalances, little is known about macroeconomic external imbalances among Chinese regions and the factors driving them. We use aggregate regional data and estimate provincial total factor productivity growth over 1984-2010. We observe that provinces that caught up relatively to national TFP had capital outflows while those that fell behind had capital inflows: there seems to be a capital allocation puzzle at the regional level inside China. We follow up by identifying the drivers of this pattern using the methodology developed in Gourinchas and Jeanne (2013) to compute regional investment and saving wedges. By relating those frictions with TFP catch-up parameters, we find an investment and a saving puzzle: regions that caught up relative to the rest of China seem to have lower investment rate (higher investment tax) and higher saving (lower saving tax) relative to the prediction of the neoclassical model. We exploit Chinese cross-regional variation in key characteristics suggested by the literature and find robust explanatory variables of the wedges: factors related to the ownership type, the level of integration into the world economy and the economic structure are highly correlated with the identified frictions.
Subjects: 
China
Chinese provinces
Wedges
Frictions
Saving
Investment
Regional capital flows
Global imbalances
Capital allocation puzzle
JEL: 
F21
F36
F40
F43
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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