Institutions Of Capital Formation Under Competition Of Local Governments In The Period Of Transition

In the period of transition, local governments play an important role in local economics development as a result of the incremental reform, ambiguous property rights and the decentralization of finance. But, local governments also become subjects with enormous profit while they contribute to economics institutions innovation in their region. The local governments are beginning to take the place of the central government in part and have become the mainly source of influence on capital formation. In the process of transition, the functions of local governments have not been perfect regulated. Therefore, under the object of decrease the regional performance gap, local governments have to accumulate regional capital rapidly in order to stimulate regional GDP growth directly and quickly. But, capital formation constantly suffers from such a situation that gross capital formation surpasses a certain scale. Overinvestment leads to an increase in local governments' gap between income and expense and a decrease in proportion between quantity of investment and economics growth. No local governments will give up the opportunity of quantity of capital formation for most of the governments burdening the cost of macroeconomics out of control. Therefore, it is difficult to improve the efficiency of capital formation and to bridge the gap between regions. The change from being plan-leading to being market-leading will be slow down and the further development will be badly struck. To bring competition of local governments out of disadvantage, we must try to construct uniform market between different regions, coordinate the local conflicts through central government, regulate governments 'performance and set up polycentric decision making institutions.