A Study On Financial Industry Agglomeration And Urban Economic Growth

Financial industry agglomeration can make all kinds of effects such as the economies of scale and scope, the financial network effect and so on. These effects would have the increasing benefits to financial instructures in the region where there is financial industry agglomeration. However, there is very different degree in financial industry agglomeration in different regions because of the differences in space and economic development,then it can have the distinct influences on economic growth and development of the city. Not only the functions that these cities make can enhance some cities’economic strength, but also can promote economic growth of the cities in the international financial centers, like New York, London, HongKong. Nowadays economic functions of financial service industry in some cities is also growing and the agglomeration effects of the financial industry can play a increasing role in the urban economy in addition to powerful economic functions from metropolis like international financial centers.In the background of China’s open policy to financial industry and the great changes of the international financial industry we select a series of contents including financial agglomeration, financial agglomeration and urban economic growth, financial agglomeration risk and financial agglomeration countermeasures to promote urban economic growth to study deeply from the city’s perspective in this paper. This paper studies the financial agglomeration and urban economic growth using various research methods from the multi-angle and multi-synthesis induction and quantitative methods combining theoretical research and empirical analysis, static analysis and dynamic analysis, and other methods such as social network analysis, Industrial economics, Regional economics, Urban economics, Finance, Financial Geography and Econometrics.We analyze inherent mechanism and the general laws of the financial agglomeration based on the study of the previous scholars and demonstrate the motives of financial industry agglomerating in cities and mechanism of the impact from financial agglomeration effect on urban economic growth.Based on collected actual data in financial industry and the financial agglomeration indexes of city are estimated in the article. Then the relationship between the financial industry agglomeration of Chinese cities and urban economic growth is discovered through the empirical analysis using panel data model. At last drawing on development experiences and lessons of international financial centers we analyze the risks from financial agglomeration as American financial crisis example and propose the prevention and management measures of financial agglomeration risks and financial agglomeration countermeasures to promote urban economic growth.The main contents and innovations can be summarized as follows:1.The city is a focal point for regional economic development.The modern city is an integrated organism combing social and economic functions such as the economy, society and physical entities.So in the article we study the issues related to urban financial agglomeration from perspective of city. Deepening of urban specialized functions have strengthened the development of some competitive industries within the city, so some cities with the objective conditions to develop financial industry can give priority to form financial agglomeration area where financial institutions concentrated. The city-specific agglomeration economies and network effects can attract the entry of financial institutions and combining the financial networks with urban social network to integrate and develop commonly. On the other hand, financial characteristics such as the complex and informative financial business itself, the liquidity of financial products, economies of scale of financial assets and capital-specific characteristics in the financial industry, make geographic factor strong to financial industry.The city location advantage is an important condition for the location of financial institutions. Therefore, the motivation of financial agglomeration in the city from the two aspects:the city’s own advantages and the characteristics of the financial industry.2.In this paper we theoretically analyze the process of agglomeration effects and financial agglomeration effects including economies of scale and economies of scope, the financial network effect, the financial knowledge and technology spillovers effect, urban financial innovation effects and self-strengthening effect and so on. After the study its conclusion is that mechanism of the impact from financial agglomeration effect on urban economic growth is shown two aspects mainly from the costs and benefits. First, in the long run, economies of scale in the financial industry can result in lower average costs because in a certain production scale the long-run average cost curve slopes downward and it results in increasing returns. Second, the effects of individual financial institution in the financial clustering can be multiplied through the coordination of various effects of financial agglomeration, and there can be increasing returns to the city. In conclusion it can make the city’s economy grow rapidly and continuously.3.In this paper we analyze the status of the urban financial agglomeration and urban economic development. Through the use of statistical methods we make a statistical description to financial agglomeration from the number of financial institutions and financial professionals, financial businesses and financial added value. Beijing and Shanghai have a certain degree of financial agglomeration compared to other cities from the number of financial professionals and financial added value. While in Beijing, Shanghai and Shenzhen the financial industry plays an important role in urban economic development, the contribution rate of financial industry on urban GDP to the three larger cities exceed ten percent.In this paper the comprehensive evaluation to financial agglomeration level to the main sample city using SPSS, shows the top10level of financial agglomeration in order:Beijing, Shanghai, Shenzhen, Guangzhou, Tianjin, Chongqing, Jinan, Suzhou, Hangzhou, Dalian.Beijing and Shanghai have more obvious advantages in financial agglomeration. 4.In the article we research the relationship between urban financial agglomeration and urban economic growth using panel data model empirically. We caculate the location quotient of financial industry and analyze urban financial agglomeration status and characteristics in China based on the analysis of indexes calculated above,and then study the relation between urban financial agglomeration and urban economic growth by panel data model.The conclusion is that the financial agglomeration is the cause of urban economic growth and it shows that the impact of urban agglomeration on urban economic growth is obvious. In this paper we use Baldwin and Martin’s endogenous and two-way interaction model about the relationship of the economic agglomeration and the regional economic growth,build the financial agglomeration and economic growth of the cities based on the previous research results and the research content of this paper,and select affect of economic growth and financial agglomeration. We use panel data model to study relationship of financial agglomeration and the urban economic growth.The conclusion shows financial agglomeration has a significant impact on urban economic growth and urban economy is power to attract financial agglomeration.5. It requires a certain comparative advantage, superior geographical and regional advantages, advanced economic entity or trade, and convenient transportation for the development of an international financial center. Also it requires perfect legal system such as sound financial laws and regulations, strict accounting,information disclosure system, and a series of open and mature financial markets and rich human resources. All those are important conditions for development of the international financial centers. By using data comparative method there is a huge gap between Chinese cities and the international financial centers in financial agglomeration compared Chinese cities with financial agglomeration advantages with international financial centers.Therefore,Chinese cities to develop financial industry agglomeration should draw experiences and lessons of international financial centers..And the policy should be made from the three aspects:government, cluster and financial institutions.In the end we propose financial agglomeration policy to promote urban economic growth in the reference of international financial centers.6.We take example by American financial crisis and analyze the process of financial agglomeration risk from sources, infection and transmission path, and performance of financial agglomeration risk. Financial agglomeration risk not only exists in financial agglomeration level but also comes from some individual financial institution, which financial risk happened in one of financial institusions, in the financial agglomeration area and that it can lead to financial agglomeration risk in whole financial agglomeration area possibly. To reduce the losses that financial agglomeration risk makes it is important to make financial agglomeration risk prevention and management policy.And the policy should be made from the three aspects:government, cluster and financial institutions.In the end we propose financial agglomeration policy to promote urban economic growth in the reference of international financial centers.In this paper, after studying a series of problems related to financial agglomeration,such as financial agglomeration, financial agglomeration and urban economic growth, and financial agglomeration policy to promote urban economic growth policies we draw the conclusion that not only the development of financial agglomeration and financial centers can bring strong competitiveness to the city, but also it can promote the growth of urban economy.At the same time, the financial agglomeration area must also face negative effects such as the occurrence and spread of risk. Therefore, what we demonstrate in this article will have great significance to formulate strategy and policy of financial agglomeration area and financial center,risk prevention and management countermeasures,and financial agglomeration policy to promote urban economic growth.