The Study On China’s Regional Capital Flow And Its Effect On Regional Economic Development Based On The Theory Of Spatial Economics

Since its reform and opening-up, China’s economy has been developing rapidly,the market economic system has become more and more perfect and productionfactors, especially the capital flow between regions have been increasingly active,which have a increasing effect on economy in different areas. How China’s capitalflows, what its laws are and what effect it has on the regional economic developmenthave been an important topic in the process of China’s economic development.However, for a long time, in the study of the problem of capital and economy, theleading economics have ignored the problems of space in economics, or have noticedbut can’t solve them, which can’t obviously interpret the real economic problems, inparticular, the regional economic problems. In1990s, the Theory of SpatialEconomics represented by Krugman creatively incorporated the spatial dimension intothe analytic framework of the leading economics, thus providing the research methodsand theoretical foundations for the study of regional (spatial) capital flow.Therefore, starting from the theoretical perspective of spatial economics and withthe combination of the theory of regional economics and Finance, this paper attemptsto reveal the mechanisms and the role of capital flow among China’s regions and itseffect on regional economic development. On one hand, it helps to expand theresearch fields of existing spatial economics, on the other hand, it helps to seek thelaws of how China’s inter-regional capital flow affects the economic development,providing theoretical foundations for the coordination of regional economicdevelopment in China.Based on sorting out the present research results of the regional capital flow, thispaper, first, statistically analyses the distribution pattern of the regional capital flow,capital stock and flow data of China’s three major regions and the results are asfollows:(1) The distribution of China’s capital is very uneven with the vast proportionin the east and since China’s reform and opening up policy, the market-driven capitalshave mainly flowed from the mid-west to the east. Since the1990s, thegovernment-led capital has mainly flowed into the Midwest, especially, the west. Butas a whole, China’s regional capital flow is mainly directed from the Midwest to theeast.(2) With the strategy of the Great Western Development and the Middle Risingimplemented in China, the capitals in the east and FDI began to flow to the Midwest, but with the vast proportion in the east. Considering the trend of the regional capitalflow, especially FDI, of the deposits and loans of financial institutions and of theinvestment in fixed assets, it is clear that the capital crowding effect in the east beganand the mid-west areas began to become increasingly attractive to capitals. China’sregional capital may be about to change the pattern of net flow from the West to theEast. The distribution pattern of China’s regional capital flow from the West to theEast is about to change.As the regional flow of China’s capital is not like what classical economicssaid—capitals often flowed from rich areas to poor areas, but it shows a significantclustering feature. Therefore, starting from the space economic theory perspective,this article continues to make an analysis of the laws of China’s regional capital flow’seffects on its regional economic development by constructing models, which showsthat the comparison of the gathering force from the market size effect and thedispersion force from the amplified effect of the local market will determine theultimate direction of the regional capital flow and the trading freedom is an importantparameter to affect capital flow. The greater the trading freedom, the moreaccumulated the trading, but the regional capital flow constitutes the main reason forthe gap in regional economic development.Second, this paper deals with the comprehensive effect of six variables, includingthe market size, trading freedom, on China’s regional capital flow, and alsoexemplifies the flow mechanism of China’s regional capital. The main conclusions areas follows:(1)The market size or potential, the trading freedom are the mostimportant factors to promote the regional capital flow and capital gathering. Thegreater the market potential and the better-equipped the basic faculty, the moreattractive they are to China’s.(2) Labor costs and human capital have not yet broughtabout a great impact on it.(3) During the study period, the gathering effect of China’sregional capitals is larger than the diffusion effect, with obvious features of capitalgathering in the east.Then, with reference to the facts and figures on China’s three major regionalcapital flow and economic development, this paper exemplifies the effects of capitalflow on China’s regional gap in economics. The results are as follows:(1)During thestudy period, China’s regional capital flow amplifies the regional economic gap inChina. The value of a1%change in regional capital flow means that the Sill EntropyValue as the measurement of China’s regional economic disparities will change in thesame direction by0.64%.(2) Since China’s reform and opening up, China’s economic development, to a great extent, still depends on the amount of capital. What’s more,the capital is of clustering feature. The more capital one region gets, the faster itdevelops in economy. But the transferred payments from the central government to theregion and the regional FDI help to coordinate China’s regional economicdevelopment.Finally, according to the stated above, this paper puts forward policy-relatedproposals on how to promote China’s capital flow and how to coordinate regionaldevelopment from multiple perspectives.