The Korea Local Administration Review

Level of local government expenditures has an important role not only in thelocal but also in the whole country’s economy. In China, local governmentexpenditures have a large part in the whole country’s government expenditurewith expenditure scale different by the character and preference of each region.Therefore, for efficient expenditures of local government, it is essential tounderstand determinants of government expenditure.This thesis seeks panel analysis on social and economical factors that haseffect on the local government expenditure in China by using 31 local data from1998 through 2009. Among many factors affecting government expenditure, thisthesis, based on foregoing researches, selected per person GDP, population,unemployment rate, population density, service industry and trade volume ofeach Sung(省) of China for uses of analysis. First, for method of analysis,integrated least square (Pooled LS) and modified variance-covariance matrix,together with White method for t-values, were calculated in consideration ofheteroscedasticity. Hausman test was also conducted to verify the suitability offixed-effect and random-effect models.For suitability test on models, fixed-effect model was found to fit and theresult of analysis showed that per person GDP, population, unemployment rate,population density, service industry have a positive effect with statisticalsignificance. Especially in case of service industry, it proved to be the largestinfluence next to GDP, revealing that for constant economic growth, Chinashould make lots of effort to solve industrial structure problems relatively
focusing on the secondary industry. On the other hand, as to trade volumeswith apparent openness, it turned out to have a positive effect, though withoutsignificance.In conclusion, from the result we can understand that social and economicfactors, such as per person GDP, population, unemployment rate, populationdensity and service industry in government expenditure, reveal the aspectssimilar to advanced countries. It implies that in China, with a gradual changeinto the free market as well as with increased autonomy of the localgovernment, social and economic factors in allocating resources will becomecritical.
⏧ Keywords: GDP, fixed effects model, Local Government, socio-economicfactors