Research on Spatial Correlation Characteristics and Their Spatial Spillover Effect of Local Government Debt Risks in China

Xing Li,Xiangyu Ge,Wei Fan,Hao Zheng

doi:10.3390/su13052687

Xing Li, Xiangyu Ge + Show 2 more

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https://doi.org/10.3390/su13052687

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Abstract

Scholars have proposed a series of methods, such as “sustainability of local government debt”, to measure local government debt risks. However, these methods have caused a lot of controversy. Based on a macro balance sheet, this study uses an improved “distance to distress” to measure China’s local government debt risks and applies a social network model to identify the spatial correlation characteristics, as well as the spillover effect. The results are as follows: (1) The data show multiple and heterogeneous spatial correlations for China’s local government debt risks; (2) there are some similarities between the subgroups and seven major geographic regions in China. The links among subgroups are randomly distributed and external; (3) the data manifest a “small world”, with a decreasing transitivity since 2014; (4) between these two significant factors, the positive impact of local government competition is more obvious than the division of powers and responsibilities; and (5) the spatial spillover effect of China’s local government debt risks results from the combination of local government competition, the division of powers and responsibilities, and local government intervention. This paper provides a scientific basis for obtaining a deeper understanding of China’s local government debt risks, and puts forward policy recommendations to strengthen China’s debt management.

Highlights

The social network of local government debt risks describes the relationship of debt risks among local governments, while the spatial network of local governments is composed of nodes and lines of a social network in which the nodes represent each province and the lines represent relationships
This paper captures the relationships and characteristics in the social network based on the gravity model, in order to analyze the spatial centrality of local government debt risks and the spillover effect in terms of the aspects of local government competition, the division of powers and responsibilities, and local government intervention
How do provincial local government debt risks with different centralities cluster together? What is the relationship between subgroups? With the help of the convergent correlation (Concor) in Ucinet6.560, combined with a maximum partition of 3, a convergence criterion of 0.2, and a maximum iteration of 25, the results shown in the figures demonstrate that the provinces with the same color are in the same subgroup

Summary

Introduction

The expansion of local government debt has exceeded the capacity of the local economy and has attracted worldwide concern [1]. The local government debt risks are roiling more and more of China’s provinces [3]. The study of contagion of local government debt risks has been reported by Easterly et al [4]. Under the severe situation in China, the local government debt risks among different provinces have been subjected to all-round monitoring in China. If this monitoring is not conducted, the debts are likely to have an effect on China’s financial system, or even the stable operation of the global economy

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