SOGEI website background

Local Government Debt and Growth Convergence

The link between public debt and growth has long been discussed. This paper evaluates the effect on growth convergence from local government debt using a panel data of 276 Chinese cities. Our results show that Chinese local government debt hike since 2008 had a robust positive effect on growth convergence. We also provide and test several suggestive mechanisms behind our findings. And we use a policy shock as an instrumental variable to show that our proposed relationship is causal.