Effect of private capital in rival projects on public-private partnership adoption in China

Abstract

ABSTRACT This study analysed how local governments react to intergovernmental competition for private capital in the public goods market. Using microlevel data for public-private partnership (PPP) projects in China from 2012 to 2018, we found that the more private capital rival cities have attracted, the more likely local governments start to introduce PPP projects, especially those whose future returns are paid by governments. The results are robust to an instrumental variable estimation using the financing demand of rival cities. The effect of rival projects was found to be related to information disclosure, financing facilitation, and governors’ responsibility. The results suggest that local governments tend to promise future obligations for payment to decrease advanced capital expenditures. This study also provides implications for political and economic research by shedding light on local competition in the progress of marketization.