Local Government Debt and Economic Growth in China—An Empirical Study Based on Granger Causality Test ()
ABSTRACT
In both the theoretical and empirical levels, both
at home and abroad, the research
of the relativity between government debt and economic growth is still
inconclusive. Combined with the practical
situation of China, this
article takes 31 provinces of our country from 1995 to 2014 and 18 (2005, 2013, rejecting) local government debt and
economic growth data as samples. First, we conduct unit root test on two
variables DEBT and
GDP to ensure
that data is stationary, and then, on this
basis of unit root test, we
conduct cointegration test to
determine whether there is a long-term cointegration relationship between DEBT
and GDP. Finally,
on the basis of the first two steps, we conduct Granger causality test on DEBT and GDP. The results show that the
local government debt and economic growth in China is the second order sequences that are of single integer. And there may not exist long-term
cointegration relationship between DEBT and GDP. In the short term, the economic growth of local
government is the Granger cause of local government debt, but the local
government debt is not a Granger cause of economic growth of local government. In the medium term, the
economic growth of local government is still the Granger cause of local
government debt and its performance is more significant. However, local government
debt is not the Granger cause of local government economic growth, but it is
weaker than the short-term. In the
long term, economic
growth and government debt of local government exit Reciprocal causation
relationship. According to 18 years real data of 31 provinces in
China, we design
empirical scheme and conduct Granger causality test in using econometric
software Eviews 8. This is the possible
innovation of this article.
Share and Cite:
Wang, Z. (2019) Local Government Debt and Economic Growth in China—An Empirical Study Based on Granger Causality Test.
Modern Economy,
10, 359-370. doi:
10.4236/me.2019.102024.