The impact of economic policy uncertainty on the capital allocation efficiency in China: an industry-level analysis

This thesis investigates the effects of economic policy uncertainty (EPU) on capital allocation efficiency (CAE) within China's various industries. Utilizing the China Economic Policy Uncertainty Index formulated by Baker et al. (2013), the study reveals a detrimental impact of EPU on CAE across sectors, with a more pronounced effect observed in industries heavily influenced by government policies. The research contributes novel empirical evidence to the discourse on EPU's influence on industrial investment behavior, underscoring the negative consequences of EPU on CAE. The findings also suggest that industries receiving government protection or investment priorities may demonstrate improved CAE under high EPU, reflecting an intricate dynamic between government intervention and industry performance. Policy-wise, the study emphasizes the importance of stable and consistent economic policies to mitigate adverse effects on investment efficiency and CAE. The thesis concludes with policy implications advocating for industry-specific strategies to bolster enterprise investments and optimize CAE, fostering a stable economic landscape conducive to growth and development.