The Impact of Borrowing Size on the Economic Development of Small and Medium-Sized Cities in China

Abstract

Sharing the economic agglomeration effects of large cities is considered an effective way to enhance economic growth in small and medium-sized cities, yet there remains a lack of relevant quantitative empirical research. In this study, the three dimensions of borrowing size of 285 prefecture-level cities and nighttime lighting data from 2004 to 2013 in China are used to assess its effect on economic development by a fixed-effects model with panel data. The results show that first, the effect of borrowing size on small and medium-sized cities’ economic development is significantly positive. In contrast, the effect of borrowing size on large cities is not significant. Second, the magnitude of the impact of borrowing size on small and medium-sized cities varies considerably across regions. In middle and western China, the most significant positive effect is from borrowing economic activity density and borrowing advanced functions. However, in eastern China, the most significant positive effect is from borrowing population, while borrowing advanced functions has a significant negative effect. In the northeast, borrowing economic activity density has a significant positive effect. This article provides policy recommendations in three areas: improving intercity accessibility, rationalizing the layout of urban industries, and supporting the development of education.