Development Economics Seminar: Sai Ding (University of Glasgow)
|Starts:||13:00 9 May 2017|
|Ends:||14:00 9 May 2017|
|What is it:||Seminar|
|Organiser:||School of Social Sciences|
Title: Fiscal policy volatility and capital misallocation: Evidence from China.
Abstract: Can a demand-side macroeconomic shock be a driver of capital misallocation in China? Using cross-province data, we find that fiscal policy volatility has a significantly positive impact on the dispersion of marginal revenue product of capital (MRPK). Factors relating to capital adjustment costs, financial frictions and policy distortions are found to play an important role in shaping the nexus between fiscal policy volatility and the static measure of capital misallocation, as reflected by the vast heterogeneity among provinces and industries. We also find fiscal policy volatility and the dispersion of marginal revenue product of other inputs such as labour and intermediate material inputs are positively associated. A simple theoretical model is derived to show a new mechanism of this association with an emphasis on the role of endogenous input quality. Our empirical results are robust when potential endogeneity and mismeasurement problems are controlled for.
Organisation: University of Glasgow
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