Review of World Economics

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

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

Original Paper

Abstract

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.

Keywords

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

JEL classification

F30 F32 F40 

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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