Local Government Debt, Real Estate Investment and Corporate Investment: Evidence from China

Abstract

This paper examines the effect of local government debt (LGD) and real estate investment on corporate investment. It finds that the increase in LGD and real estate investment leads to a decline in corporate investment and that the crowding-out effect is mitigated by the interaction of LGD and real estate investment. The effects are channeled by raising corporate costs and reducing corporate financing. This impact is more pronounced for firms in eastern regions and nonresource-based cities, large and private firms.