Academic Journal of Business & Management, 2025, 7(1); doi: 10.25236/AJBM.2025.070110.
Wenjie Hao1, Lulin Li2
1School of Economics, Fujian Normal University, Fuzhou, China
2School of Cross-border E-commerce, Yango University, Fuzhou, China
Has the high-leverage growth model continued after the demographic dividend in China? The ongoing debate at the macroeconomic level focuses on whether local government debt has played a significant role in sustaining high economic growth in China. This study examines the economic effects of local government debt governance reforms, using the 2015 comprehensive “self-issue and self-repayment” policy as a natural experiment. The analysis is based on a sample of 284 prefecture-level cities from 2010 to 2021. The results show that: (1) Both the “open the front door” and “block the back door” measures of local government debt governance have contributed to a reduction in regional economic growth rates. These findings provide some evidence for the notion that high leverage has been associated with high growth in China. (2) Heterogeneity tests, grouped by economic development level and city tier, indicate that the impact of local government debt governance is more pronounced in eastern and western regions, as well as in prefecture-level cities, where economic slowdown is more significant. In contrast, the effects are less pronounced in the central regions, sub-provincial cities, and provincial capitals. (3) Mechanism analysis further suggests that local government debt governance reduces regional economic growth through the "transformational effect" of the "open the front door" policy and the "contraction effect" of the "block the back door" policy. These results contribute to a deeper understanding of the factors behind China's economic growth trajectory.
Local government debt; GDP growth rate intensity; Spontaneous return; contraction effect
Wenjie Hao, Lulin Li. Local Government Debt Reform and Regional Economic Growth in China. Academic Journal of Business & Management (2025) Vol. 7, Issue 1: 74-82. https://doi.org/10.25236/AJBM.2025.070110.
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