Interregional Capital Mobility Research Articles

Surname distance and interregional investments

Interregional capital mobility is crucial for high-quality development. Existing literature highlights the role of geographical and boundary effects on interregional investment, but often overlooks cultural differences. Using administrative records of business registration data covering nearly 200 million firms in mainland China from 2005 to 2022, we construct a novel panel data on interregional investment networks and reveal that surname distance as a metric of cultural differences significantly inhibits interregional investment, with elasticities of −0.955 and −0.713 on the amount and quantity, respectively. Furthermore, the mechanism analysis demonstrates that increased surname distance heightens survival risks, shortens market duration, and leads to more litigation for firms investing in culturally distant regions. This impact intensifies over time, is more significant in regions with low marketization levels, and has a pronounced effect on intraprovincial investments.

Regional Capital Mobility in China: An Endogenous Parameter Approach

In this paper we empirically evaluate inter-regional capital mobility in China from 1978 to 2012. We measure the degree of capital mobility as the ability of regions, each as a representative consumer, to engage in intertemporal consumption smoothing through running external imbalances. We estimate a correlated random coefficient model which takes into account the potential correlation of capital mobility with output. Our results show that barriers to capital mobility across regions are still high in China. However, there is a slight increase in capital mobility over time. After 2000, the improvement of the degree of capital mobility becomes stagnant. This may reflect the prevalence of capital market distortion in China.

Reducing regional disparities in China: An evaluation of alternative policies

Regional disparities in output per capita and income in China are large and persistent. They have been the subject of considerable concern to policy-makers at the highest level for decades, yet little is known about the effectiveness of various alternative policies which may be used to combat them. In this paper we address this issue by analysing the effectiveness of a range of policies by both regional and central governments. We use a small model with various features of the Chinese economy: two regions (the interior and the coast), two industries (agriculture and manufacturing), inter-regional capital mobility, internal migration subject to the hukou system of household registration and some features of the Chinese tax and expenditure system. The model is calibrated to Chinese data and simulated to analyse the effects of a number of policies on a range of variables but focussing on per capita output disparities and welfare. We find that a policy reducing internal migration costs is effective in reducing the per capita output gap but does so at a substantial cost to the coast. Policies which improve agricultural productivity in the interior region are most likely to both reduce the gap and make both regions better-off. Changes in government consumption expenditure, central government fiscal redistributions and tax cuts, on the other hand, are less effective and have their long-run effectiveness reduced by migration.

Selling China: Foreign Direct Investment during the Reform Era

In this book, Yasheng Huang makes a provocative claim: the large absorption of foreign direct investment (FDI) by China is a sign of some substantial weaknesses in the Chinese economy. The primary benefits associated with China's FDI inflows are concerned with the privatization functions supplied by foreign firms, venture capital provisions to credit-constrained private entrepreneurs, and promotion of interregional capital mobility. Huang argues that one should ask why domestic firms cannot supply the same functions. China's partial reforms, while successful in increasing the scope of the market, have so far failed to address many allocative inefficiencies in the Chinese economy.

The regional consequences of international trade with interregional capital mobility

This paper examines the resource allocation and welfare effects of international trade when a nation is composed of distinct regions and capital is mobile interregionally. The introduction of capital mobility significantly alters the regional consequences of free trade. It is shown, for example, that it is possible that the source of the nation's export expansion is the region that is at a technological disadvantage in the production of the export good. Also, that region whose comparative advantage coincides with that of the nation as a whole may see its welfare decrease with free trade.

Optimal property taxation in the presence of interregional capital mobility

A single region's optimal property tax policy is examined in a model with interregional capital mobility. In this model, property taxation is used to finance local public expenditures. Different tax rates may be imposed on property used to produce goods which are traded between regions and property used to produce nontraded goods (e.g., residential property). The key determinants of the difference between the optimal tax rates are identified, and it is argued that there exists a bias towards relatively low tax rates on property used to produce traded goods. The role of labor mobility is also investigated.

Possibilities for the exportation of production taxes: A general equilibrium analysis

This paper re-evaluates previous discussions of inter-regional tax incidence and tax exportation. A two region general equilibrium model is developed that allows for inter-regional capital mobility and explicit commodity price determination, where one of the two regions is incompletely specialized. Conditions are determined under which either region will be able to export a production tax. Also, the link between tax exportation and the welfare of the taxing region is analyzed. In the case where taxes are not equal to zero initially, tax exportation may be inadvisable even when it is possible.

Banking Market Structure, Risk, and the Pattern of Local Interest Rates in the United States, 1893-1911

IN the postbellum United States a number of mechanisms existed which promoted the interregional transfer of short-term capital. For example, the correspondent banking system linked country banks with city banks in a pervasive network, as indicated by the fact that in 1913 10 selected New York banks alone held over 15,000 accounts of out-of-state banks (Beckhart and Smith, 1932, p. 156). Slightly later, in 1925, 600 out of 655 Georgia banks maintained accounts in New York; while as far away as CaliforRia, 515 out of 644 banks did (Watkins, 1929, pp. 408-411). These city correspondents purchased commercial paper for country banks, giving even remote banks access to national funds markets, and also transferred funds to them through interbank lending and rediscounting. Although interbank borrowing amounted to only about 112 % of total national bank loans and discounts in 1892-1897, it was an important source of funds for a region like the South, where it constituted at least around 10% of total loans and discounts (Breckenridge, 1898, p. 137). Other methods of interregional funds transfer existed outside of the correspondent banking system, such as direct interregional lending. In 1915 almost 30% of the loans of eastern reserve city banks were made interregionally; almost one-half of all loans in the South made by reserve city banks in 1915 were made by banks outside the South (U.S. Comptroller of the Currency, 1915, pp. 18-19). Interregional holdings of bank stock also represented important sources of funds in some areas; for example, over the late nineteenth century between 25% and 40% of total national bank shares in the Great Plains and western states were held by investors outside the state. Finally, the commercial paper market facilitated the transfer of funds from lenders to borrowers in different regions. Although there were transfers of funds among regions,1 nevertheless substantial interregional interest rate differentials in realized as well as in quoted rates existed.2 These differences were taken as evidence of an imperfect national short-term capital market and of the existence of local monopoly power in southern, midwestern, and western states. Explanations of the movement toward a national capital market over this period have all assumed the existence of barriers to interregional capital mobility. To Lance Davis the westward spread of the commercial paper market facilitated interregional transfers of funds; Richard Sylla, on the other hand, has emphasized the role of high minimum capital requirements and other legal barriers to entry as supports of local bank monopoly power before the more liberalized requirements of the Gold Standard Act of 1900 took effect.3 Risk, however, has to be taken into account explicitly; even in a perfect capital market local interest rates may diverge if differences in risk across regions exist. Were the existing institutions for the interregional transfer of short-term capital in the postbellum period adequate for the operation of a well-functioning national money market? In other words, did a perfect national capital market exist at that time? In order to separate Received for publication June 30, 1975. Revision accepted for publication February 3, 1976. * I am greatly indebted to Peter Temin and Richard West for their many helpful suggestions and comments and to R. M. Hartwell for his diction. This article originally constituted part of a much more lengthy paper presented at the Cliometrics Conference, Madison, Wisconsin, April 1975, and at the economic history workshop of the University of Chicago. Comments from participants at these sessions are also gratefully acknowledged. Responsibility for any remaining errors lies with the author. 1 For a rough estimate of the magnitudes of long-term and short-term interregional capital flows over the 1900-1910 decade, see James (1974), pp. 200-212. 2 For a contemporary discussion of this phenomenon, see Breckenridge (1898). 3 See especially Sylla (1969) and Davis (1965).