The Impact Of Financial Suppression On Local Government's Investment Behavior

Since the reform and opening up more than 30 years,China's GDP annualaverage of more than 9% growth rate,leapt to the world's second largesteconomy,has made great achievements.The local government investment hasmade a significant contribution to the economic growth,but the local governmentinvestment behavior alienation caused by overcapacity,lack of domestic demand,economic transformation and upgrading difficulties and other issues also led topeople's attention,these problems on the national economy has becomeincreasingly prominent.How to regulate the investment behavior of localgovernments in our country is an important factor to determine whether oureconomy can continue to grow healthily.The factors that lead to the alienation oflocal government investment behavior are complex and diverse.Based on thetypical characteristics of financial suppression and the dependence of localgovernment investment in China's economic operation,scholars such as Girui,Wang Huaifang and Zhu Pingfang confirm that local government investmentFinancing constraints of the relevant research,this paper think that financialsuppression is an important factor that lead to the local government investmentbehavior alienation.This paper first summarizes the related literatures of financial suppressionand local government investment behavior,and analyzes the historical processand current situation of the two,aiming at digging into the mechanism offinancial restraint and local government investment behavior.This paper arguesthat because of the economic growth of the troika for investment,consumption,net exports,and financial suppression will lead to insufficient private investment,lack of domestic demand and the failure of the classic monetary policy,whichcan only rely on government investment,and financial suppression make thegovernment Investment lacks financing constraints.In theory,financial restraintis not only the subjective motive factor of exacerbating the impulse ofgovernment investment,but also the objective factor of local governmentinvestment lack of financing constraints,which leads to alienation of localgovernment investment behavior.After the qualitative analysis,this paper alsoconstructs the empirical model of financial suppression which affects the scale oflocal government investment,and analyzes the relationship between financialsuppression and local government investment behavior from the empirical pointof view.As the statistical literature does not clearly represent the indicators oflocal government investment,so this article with reference to the relevantliterature to select the financial investment and state-owned fixed assets,the twoindicators to measure the local government investment behavior makes the articlemore convincing.For the financial suppression indicators to the provincialmarket-oriented index to measure the scale of financial development andefficiency as a model of the robustness of the indicators.The model data is basedon provincial panel data from 2003 to 2015.After the theoretical analysis and empirical test on financial suppression andlocal government investment behavior,this paper draws the following conclusion:Financial suppression will aggravate the impulse of local government investment,leading to the expansion of investment scale.Reduce the degree of financialsuppression,is conducive to regulating the local government investment behavior,and thus promote healthy economic growth.The policy recommendations are asfollows: reform the state-owned banking system,reduce the government'sintervention in the financial system;improve the local government officialsperformance evaluation system,the introduction of public service-relatedindicators,reduce local government investment impulse.