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| 1 |
ID:
134853
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| Summary/Abstract |
This paper investigates the extent to which idiosyncratic shocks to the permanent income of various provinces in China were mitigated through the channel of provincial risk-sharing during 1952–2008. Taking into account the possibility of self-insurance through saving, we find that provinces in China shared roughly 38% of their idiosyncratic output shocks during the entire sample period. In particular, we show that conventional risk-sharing analysis in the extant literature that does not take into account the self-insurance channel tends to over-estimate the degree of risk sharing by implying a degree of risk sharing of around 54%. Moreover, in view of the major economic reforms that had taken place in the last few decades, we decompose the sample period into two sub-phases: the pre-reform period (1952–1978), the reform period (1978–2008). We find that there is a notable increase in the degree of provincial risk sharing in the reform period. The degree of provincial risk sharing across China is comparable to that across the OECD countries, but falls short of that among the states in the US.
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| 2 |
ID:
112734
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| Publication |
2012.
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| Summary/Abstract |
This paper examines the impact of recent financial reforms in China on the financing constraints and investment of publicly-listed Chinese firms. Two continuous indices are constructed to measure the evolution and intensity of financial reforms: a financial liberalization index and a capital control index. Dynamic panel GMM method is used to estimate firms' financing constraints in an Euler-equation investment model. Based on panel data of listed firms for 1996-2007, we find that large firms face no credit constraints and smaller firms display significant constraints. However, the sensitivity of large firms' investment to their cash holdings is heightened as more financial reforms take place. It appears that reforms that gradually eliminate preferential treatments to large firms, primarily state-owned enterprises (SOEs) in China, have subjected these firms' investment decisions to stricter market-based discipline and therefore raised their financing constraints. No significant change in the financing constraint is detected for smaller firms in China. This is interpreted as financial reform in China has not been substantial enough for its benefits to reach smaller firms.
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