Work

Investing like conglomerates? When local governments diversify beyond public services

Year: 2024

Type: article

Abstract: We examine government decision‐making by studying Chinese local government financing vehicles (LGFVs), an often‐criticized funding and investment channel. We find an inverted U‐shaped relationship between LGFV diversification and subsequent local economic growth confirmed by identification using policy and regulatory events. The inverted U‐shape is stronger when local economic development or government indebtedness is higher. The degree of diversification reflects career concerns and decision‐making biases of local political leaders. Thus, bad economic outcomes follow when local governments venture beyond public services, borrow aggressively and invest in too many businesses. Our findings echo the empirical literature on corporate conglomerates.

Source: Economics of Transition and Institutional Change

DOI: 10.1111/ecot.12440

Authors: Warren Bailey, Jianchao Fan, Jing Liu, Yinggang Zhou

Institutions: Cornell University, Fudan University, Xiamen University, HSBC Holdings

Language: English

Topic: Local Government Finance and Decentralization

Subfield: Political Science and International Relations

Field: Social Sciences

Domain: Social Sciences

Open Access status: bronze

Funders: HSBC Bank USA, University of Cyprus, Fudan University, Shanghai University of Finance and Economics, Xiamen University, Dongbei University of Finance and Economics

OpenAlex ID: W3173377136

FWCI:

Cites: 90

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Related to: 10