Strategic Competition in Public Spending on Education in Different Chinese Regions

Abstract

This short chapter contains an empirical study that, by applying the same theoretical framework as used in the previous chapter, examines the issue of strategic competition in public spending on education among different provinces in China. Our attention is on whether significant competition exists among the Chinese provincial governments in their education expenses. The presence of such interregional competition may arise either in response to certain mechanism of inter-provincial spillovers or to some mechanism of inter-provincial resource flows between provinces. Just as in the previous chapter, based on the theoretical models in the literature, we derive our basic regression specification, which constitutes the foundation for our empirical analysis in this study. By using the panel data GMM technique, we can show that under a “smooth-distance-decay” assumption in constructing the weighting scheme for the relevance of interaction between two provinces, our regression results provide evidence that supports the claim that there exists inter-provincial spatial competition in public expenditure for education among the Chinese provinces.