Setting local economic growth targets: does it mitigate nationwide policy uncertainty?

Abstract

The baseline results show that policy uncertainty and growth targets significantly affect company investments, as expected, and that the growth target mediates the relationship between policy uncertainty and investment. However, some omitted factors may influence our findings. Therefore, we conduct some robustness checks.Alternative EPU index. In our baseline regression, the uncertainty index is constructed by translating monthly data to quarterly and annual data. We directly convert monthly to annual metrics to check whether the method impacts our results. Specifically, each month is given a weight of 1/78, 2/78, ..., and 12/78, and the weighted average policy uncertainty index (EPUB) is calculated. Columns ( 1) and ( 2) of Table A1 report the estimated results using the alternative EPU index. The estimation in column (1) only controls for firm and year fixed effects, while column (2) adds firm-and city-level control variables. The two columns consistently show that the interaction term coefficient remains positive and statistically significant at the 1% level, thus suggesting that employing multiple ways to generate the yearly EPU index has a negligible effect on the main outcome.Furthermore, reconstruct China's EPU index using mainland Chinese newspapers. We also use their uncertainty indices to double-check the baseline results and employ the same method to convert the monthly to the yearly metric. EPUH1 is a step-by-step calculation, whereas EPUH2 is the weighted average of the monthly indices. The results in columns (3)-( 6) of Appendix Table A1 using the new metrics reveal that with or without control variable specifications, the estimated interaction term coefficient is positive and statistically significant at the 1% level. Moreover, in our preferred specification with control variables, the magnitude of the key coefficient is similar to that in the baseline results, suggesting that various methods for measuring policy uncertainty have a minimal impact on our major conclusions.Alternative measurements of the dependent variable. We employ total assets to normalise investment in our baseline model, which captures the effects on the relative level of investment. Here, we also examine the impact on the absolute level of investment, that is, the natural logarithm of the net value of fixed assets. Columns (1) and (2) of Table A2 report