Review of World Economics

, Volume 153, Issue 3, pp 573–599 | Cite as

A provincial view of global imbalances: regional capital flows in China

  • Samuel Cudré
  • Mathias Hoffmann
Original Paper


We model capital flows among Chinese provinces. A version of the present value model of the current account (PVMCA) with non-tradable goods and a savings wedge accounts for around 80% of the variation in inter-provincial capital flows over the 1986–2010 period. The PVMCA also allows us to identify the channels of external adjustment in capital flows at the province-level: variation in intertemporal prices (domestic and international interest rates, the provincial real exchange rate) and intertemporal variation in quantities (output, investment and government spending). We find that cross-province variation in the importance of these channels is correlated with the importance of private and state-owned enterprises and demographic factors. We discuss implications of our results for global imbalances in capital flows.


China Chinese provinces Capital flows Current account Global imbalances External adjustment Present-value models Regional business cycles 

JEL classification

F30 F32 F40 



The authors gratefully acknowledge support by the Swiss National Science Foundation in the framework of the ProDoc project Capital Flows among Heterogeneous Economies. The authors would also like to thank Paul Bergin (the editor), Cédric Tille, Ulrich Volz, Fabrizio Zilibotti, Aaron Mehrotra and seminar participants at the macro committe meeting of the German Economics Association, the Bundesbank East Asia Workshop, the Hong Kong City University-BOFIT Renminbi Conference, the Mainz Workshop in Trade and Macro, the HKIMR China Conference and at the University of Zurich for comments and suggestions. We are also grateful to two anonymous referees whose comments greatly helped us improve the paper.

Supplementary material

10290_2017_278_MOESM1_ESM.pdf (137 kb)
Supplementary material 1 (pdf 137 KB)


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Copyright information

© Kiel Institute 2017

Authors and Affiliations

  1. 1.McKinsey & CoWroclawPoland
  2. 2.Department of EconomicsUniversity of ZurichZurichSwitzerland
  3. 3.University of Zurich Research Priority Program in Financial RegulationZurichSwitzerland
  4. 4.CESifoMunichGermany
  5. 5.Centre for Applied Macroeconomic Analysis (CAMA)Australian National UniversityCanberraAustralia

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