It is puzzling why China has one of the highest investment rates in the world. In 1994 China introduced a new fiscal system. Using this natural experiment and the dynamic provincial panel data during the following period 1995-2002, we find that fiscal decentralization has a significant, positive...

We propose creative destruction as the channel for inflation to impact growth. The banks reap revenue from higher rates of credit growth, attracting more labor into banks and decreasing the profit of entrepreneurs. But when the revenue is achieved by issuing more credit to entrepreneurs, part of...

Technological diffusion via FDI is essential for the economic growth of backward economies. However, institutional and policy barriers may slow down technology diffusion. Using a simple theory based on Acemoglu (2009, ch. 18), we predict that there exists an interaction (i.e., a complementary)...

We model creative destruction as a channel via which credit inflation affects growth. With a demand function for real credit, there is a dynamically consistent revenue-maximizing rate of credit inflation. A higher semi-elasticity of real credit demand with respect to credit inflation yields a...

This paper empirically tests whether the host country financial reform promotes the inflow of FDI. We test the hypothesis on the panel data of China. First, Granger causality tests (Granger, 1969; Sims, 1972) show that financial deregulation causes FDI and the causality is unidirectional. Second,...

We argue that how inward foreign direct investment (FDI) affects domestic human capital accumulation (HCA) depends on the degree of financial deregulation. Utilizing the Chinese experience and its panel data, the OLS (ordinary least squares) regressions suggest that FDI has a significant...