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Messrs. Lee and Syed are, respectively, the Senior and Deputy Resident Representative in the IMF’s China office. Ms Xueyan is a Senior Fellow in the Academy of Macroeconomic Research at the National Development and Reform Commission (NDRC) of China. We would like to thank Wang Xin for outstanding research assistance, and the NDRC and the People’s Bank of China for hosting seminars and providing valuable comments. This paper has also benefitted from comments by the IMF China team.
Traditional measures of investment efficiency like ICORs also suffer from the same limitation.
Tests were also conducted on whether private consumption “Granger causes” investment. No evidence of such reverse causality was detected, again with the exception of coastal provinces post-2000.
GMM will provide unbiased and consistent estimates provided the instruments are valid and there is no higher-order serial correlation in the residuals. Both conditions were assessed using standard tests.