The Economic Effect Of Local Government Investment

Nagi(2009)focused on the regional competition under a highly decentralized structure when explaining China's high growth for three decades.A series of studies by Lin Yifu(2002,2005,2009)emphasized the high investment rate in China and the active role of local government investment.In an investment-driven economic growth model,is it because of the investment behavior of local governments that it becomes a lasting driver of China's growth?How does the change in investment by local governments play a role in China's economic system,and ultimately in the fluctuations of key indicators such as gross national product,private investment and consumption?Furthermore,if the competition between regions and local governments is the key to China's growth,why do so many studies consider the defects of repeated construction,regional structural convergence,overcapacity and market segmentation as the vicious competition among Chinese local governments?More specifically,how do local government competition generate these welfare losses on the basis of a benign aggregate effect?Based on these issues,this paper focuses on the mechanism of the interaction between local government investment and economic growth,local government investment and homogenization competition.While describing the growth effect of local government investment,it is expected that the repeated construction of regional competition,Overcapacity,market segmentation and local protection provide behavioral logic and economic explanation from the perspective of local governments.According to the two parallel ideas of "Local Government Investment and Economic Growth" and "Local Government Investment and Homogeneous Competition",this paper first analyzes the process of growth effect and transmission mechanism of local government investment.From the empirical results,both the central government investment and local government investment have a significant pulling effect on economic growth,but their real effects have typical time-varying characteristics.The role of central government investment in promoting economic growth gradually increased.However,the role of local government investment in economic growth started to stabilize after a rising process,but from 2010 onwards,it showed a downward trend in growth effect.In contrast,local government investment is more effective in boosting growth.In addition,there are significant differences in the effects of different forms of government investment.Among them,the stimulative effect of productive investment on growth is more direct and prominent.The above results confirm that the main body of government intervention in our country has indeed been transferred from the central government to the intergovernmental level.Next,this paper conducts an empirical simulation of the mechanism of private investment,consumption and local government investment.In the relationship between local government investment and private investment,we find that local government investment expansion can squeeze private investment in a short period of time.However,over time,crowding in will translate into crowding out effect,and the longer term examination actually supports the neoclassical school of economic theory that government investment is neutral in the long run.In addition,central investment does not have a significant impact on private investment.Positive fiscal policy can indeed rapidly improve the level of the total output of the national economy.However,it is more of an alternative to private investment.Private investment changes have typical uncertainties and the government's investment expectancy will not be directly Affect the enthusiasm of private investors.The "multiplier effect"described by Keynesians did indeed occur,but only in sectors dominated by the state-owned economy.Combined with the structural differences in the industry and the sectoral economy in our country,perhaps,this formed a two-cycle,dominated state-owned economy Internal and government investment has formed a strong industrial demand,and through the industrial chain,reflected weakly in the traditional competitive areas and private economy sectors,but also to some extent promoted the rise of private investment,however,two cycles of Relatively independent,limited capital supply conditions,the increased cost of capital due to increased scarcity,but will squeeze out private investment in a longer period of time,and thus the formation of "hot hot" and "cold more cold" reality.If we take into account the investment preferences of local governments and the involvement of state-owned capital in traditional and downstream industries,this squeezing will take place in a shorter period of time.The actual implementation of the pro-active fiscal policy has aggravated the structural imbalance in the economy,both state-owned and non-state-owned.In connection with this,when examining the impact of local government investment on household consumption,we have introduced control variables that measure the behavior of government.And did get a significant estimate.The relative size of local government investment differences,that is,the macro-government and small government model,as well as the constraints of government investment strength,significantly affecting the fiscal policy on consumer transmission and effectiveness.In general,under the big government model,the crowding-in effect of fiscal policy on household consumption is more prominent,which is consistent with the traditional understanding.The productive expenditure of local government has a crowding-out effect on household consumption,while the non-productive expenditure has the opposite effect.Therefore,the increase of non-productive expenditures and transfer payments can indeed play a positive role in promoting consumption.The improvement and reversal of the economic drive mechanism will depend on the government's amendment of more people's livelihood care and income distribution mechanisms.After completing the analysis of the growth effects of local government investment,this paper shifts the research center to local government investment and regional competition.From the economic phenomenon of convergence of industrial structure within the regional competitive framework of fiscal decentralization,this paper leads to homogenous competition,Combined with the reality of China's institutional characteristics and the reality of regional competition,this paper demonstrates the differences between industrial structure convergence and homogenous competition.And in a local government behavioral logic analysis,this paper demonstrates the characteristics of the regional competition in China,where the overall "structural divergence" and the "homogeneous competition" of specific industries coexist.In order to provide further evidence for the above assertion,this paper uses the similarity coefficient to empirically measure the convergence characteristics of inter-provincial economies from the perspective of the two industries of strategic emerging industries and traditional industrial sectors.The conclusion shows that in the traditional industrial sectors,there is no structural convergence or even structural divergence in the regions of our country.However,in some strategic emerging industries and those with policy superiorities,there is a high degree of structural convergence.In other words,there is indeed the coexistence of structural divergence and emerging industrial structure convergence in our region.And under the influence of different government stimulus signals,it shows the accompanying pattern of the high economic growth and the vicious competition in the local industries.It is precisely this regional economic feature of China that provides a more complete explanation of the various chaos derived from the competition of local governments in our country.Finally,under the premise of the logical premise of structural divergence and homogeneity competition in regional economy,this dissertation starts with the framework of fiscal decentralization and analyzes the preference characteristics and behavior alienation of local government investment behavior in our country.Specifically,The highly decentralized powers and responsibilities do not match the promotion needs of the framework and local government officials,creating a double distorting incentive for local government investment.In turn,the investment behavior of local governments shows the investment preference of investing in hunger,pursuing performance,investing short-sightedness and local protection tendency.It is also in this kind of local government investment preferences,derived from the consequences of homogenization of competition.In order to provide a more reasonable explanation for the homogenization of production,development and solidification,this paper also uses the Cournot equilibrium game model to analyze the homogeneity of regional competition in some emerging industries in the context of structural divergence Provided an explanation.The conclusion shows that as long as the central government releases stronger performance signals in emerging industries,due to the preference of local government investment,duplication and homogenization will be formed on the basis of deviation from comparative advantages.Furthermore,due to the preference of local governments,even if the central government observes the homogenization competition,the macro-control and industrial coordination of the central government will not be effective due to the incentive model of local governments.This led to the homogenization of the competition.As the end of the full text,starting from the goal of cracking down on the homogenization competition and amending the incentive system of local government,this paper gives some suggestions on how to adjust the preference of local government investment,accelerating the transfer of local government performance appraisal and building the responsibility of local government Matching the decentralization model,strengthen the local government budget constraints and budget transparency and other measures will be able to fundamentally correct the current distorted local government incentive model to achieve local government investment optimization,and then solve the homogenization of competition,redundant construction,overcapacity,Market segmentation and a series of economic issues.