Inter-regional Capital Flow In China: Theoretical Analysis And Empirical Study

The spatial flow and relocation of the capital in an economy is one of the basic and pre-conditions to improve the efficiency of the factor allocation. The market has been playing the more and more important role in resource allocation along with the market oriented reform and opening up of China. Inter-regional capital flow has become one of the major important intension of marketing resources in China. At the same time, the wide difference of capital allocation between all regions is caused by both the difference of regional capital formation rate and the difference of inter-regional capital flow. This inter-regional capital flow is also a major factor of economic differences among all the main regional economies. Based on the overall research of phenomena of inter-regional capital flow, this paper is to explore the general mechanism of inter-regional capital flow in China, to explain the causes and effects of cross-regional flow of capital factors, and to reveal its rules of inter-regional flow. The theoretical meaning of this research is to give an explanation to inter-regional capital flow in China according to the theories of main-stream of economics, then, the author wish to make some progress on the crossing field of Regional Economics, New Economic Geography and Transition Developing Theory research. While its practical meaning is to get a scientific understanding as valuable references for governments on making relevant policies.Based on reviewing research findings, we analyze the status quo and situation of inter-regional capital flow in China, then build a model to research its mechanism by means of methods of New Economic Geography, then research its universality mechanism. Applying the model and the mechanism, we research the phenomena of inter-regional capital flow in China by means of empirical study.The normative and positive analysis methods are applied, and the latter is mainly used. The specific research methods applied are Mathematical Model, Econometric Tests, the combined method of history vs. theory and data vs. fact, and etc.Capital flows across regions in China can be divided into two types: government-oriented and market-oriented. Government-oriented capital flows is served for the governments' political and economic goals. When the government pursues the efficiency-priority principle, government-oriented capital flows to relatively well-developed areas more. As the government pursues the equity-priority principle, the capital flows to relatively underdeveloped areas more.The basic motivation of market-oriented capital flows is to pursue benefit and to avoid risk. A model of inter-regional capital flow which is built by means of the methods of New Economic Geography clearly show this: two kind of forces applied to capital exist in one area, one is gathering-force oriented by market space in the area, another is repulsive-force oriented by the quantity of capital usage. If one force is not equal to another, inter-regional capital flow is being.The labor mobility in domestic is comparatively free, so the capital flow will cause the labor mobility, and then there will be a process of circulative accumulation and dynamic causality, which leads the capital and labor flow to the area where there is higher return on capital, until the repulsive-force originated from the overcrowding effect is equaled with the gathering power in area.The inter-regional capital flow in China is composed of government-oriented and market-oriented. The scale of capital flow government-oriented is less the one of market-oriented, so the direction of flow is decided by the market-oriented.By means of the model of F-H, Econometric Tests on the degree of liquidity of capital flows across provinces in China have been conducted. Based on the existing research at the national level, this paper goes further to do so firstly at the level of the three regions in China. The results show that the degree of liquidity of capital flows across provinces between the western and other regions is the highest, and is the lowest between the eastern and other regions. The results of the econometric tests also demonstrate that the capital flow pattern in past twenty years or more in China is flowing from the middle and western to the eastern region. This flow pattern enlarges the gap of the three regions in China, and the conclusion is validated by EconometricTest which is based on a model built in fourth chapter of the paper.