Seminar Vol. 188

Title: Measuring Urban Bias in Capital Allocation: Evidence from China

Speaker: Xiao Wei, Southwestern University of Finance and Economics

Time: October 21st, 2019      13:30-15:00

Venue: Conference Room 106B, IESR, Zhonghui Building (College of Economics)

About the speaker:

Xiao Wei received his Ph.D. at Stockholm University in 2014. Currently he is an Associate Professor at the Research Institute of Economics and Management, Southwestern University of Finance and Economics. His research interests include topics in urban economics, development economics and political economics. He has published several papers in Journal of Regional Science, Regional Science and Urban Economics, Journal of Comparative Economics, and Land Use Policy.

Abstract:

Even though urban bias in resource allocations, wherein governments neglect their rural population in favor of urban residents, is often considered as an important concern in developing countries, empirical evidence on whether urban areas indeed receive an inefficiently higher level of investment remains limited. In this paper, using micro data on firms from urban and rural areas of China and taking efficiency considerations into account, we measure the extent and patterns of urban bias in capital allocation. First, we find that urban firms appear to have cheaper access to capital. Second, this urban-rural gap is primarily driven by state-owned enterprises, suggesting that investment choices by the state, as opposed to constraints faced by private enterprises, represent the more likely factor for the underinvestment of capital in rural areas. Exploiting the regional variation across Chinese prefectures, we also document how the urban-rural gap in capital allocation varies across important market and political factors, such as the level of financial development, the geographic proximity of the urban area to centers of power, and the level of state control over the local economy.