Does Fiscal Spending Affect TFP? Evidence from Chinese Provinces

Abstract

This paper utilizes the Bartik instrument to examine the impact of provincial government spending on TFP growth in China. Our analysis reveals a noteworthy relationship: a 1% increase in provincial government spending variable over 2-year horizon would on average lead to a 0.85% increase in TFP growth during 2001–2009 and a 0.25% decrease during 2010–2018. This disparity can be attributed to the varying effects of fiscal spending on above-scale industrial enterprises, which are influenced by change in access to production factors and market power. JEL codes: H7, E6, O4, L1