Research Of The Convergence Mechanism And Path Of Urban-rural Financial Structure

As with most developing countries, China is a typical country with urban-rural dual financial structure. The dual financial structure and dual economic structure are mutually reinforced by the interaction and this process seriously restricts the integration of urban economic and rural economic. According to Solow's(1956) point of view, the economic development inevitably exist a kind of steady state, the process of economic development is along a certain path to tend to a steady state, this feature is the convergence of economic development(Hu, 2012). But whether the urban-rural dual financial structure has intrinsic convergence? What's the influence of China's urbanization and marketization process on the convergence of dual financial structure? How to choose the reasonable path and policy for convergence of dual financial structure? There is few theoretical study and empirical study of these problems, thus affecting the effectiveness of macro-financial policies. The mainstream researches of financil development focus on the aggregate relations between financial development and economic growth. In most relavent papers, research on the urban-rural dual financial structure has been implied in the relationship between economic growth and financial development. In most cases, urban-rural financial structure is only described as a characteristic fact. For a long time, the policy regulation of financial issues still follow the pattern of government intervention in the background of government control the financial resources due to lack of pertinent studies on the feature and path of financial structure evolution. But in practice, the changes of the dual financial structure, especially the rural financial development is not sensitive to the supply-oriented policy. The existing problems triggered the thinking of mechanism arrangement and path choice in favor of convergence of urban-rural dual fiancial structure.This paper addressed the analysis framework of urban-rural financial structure in the framework of financial development theory and the theories of development economics. Introduce the discrepencies of urban economics and rural economics in output, productivity, income and mechanism, from the perspective of both macro and micro, short run and long run, demand and supply, to illstrate how dual economy structure affect dual financial structure. Based on the “Aggregation-Diffusion” effect analysis form, this paper analyzed the interaction mechanism of urban financial development and rural financial development and then revealed the conditions of occurrence. To empirically test the theoretical hypothesis, this paper puts forward a multi-level evalution index system, and then use different indicators to test the global convergence of dual financial structure in China. Besides, this paper applied ? absolute convergence, ? absolute convergence and ? conditional convergence respectively to explore the regional convergence. On this basis, this paper empirically tests the influencing factors of urban-rural dual financial structure and revealed the regional differences of these factors. This paper also revealed the interactive relation between rural financial development and urban financial development and the impact on dual financial structure of economic transformation in different development stages by using the threshold effect model. Accroding to the results of theoretical and empirical studies, the conclusion summarized the characteristics and the law of evolution of the dual financial structure, and then proposed the major content of the path selection.The main conclusions of the paper are as follows:(1) Under the overall convergence condition, the level of China's dual financial structure is still relatively high and regional differences are obvious. The results of evaluating of dual financial structure level from the macro, meso and micro view respectively indicate that, within the range of 2003-2012, China's dual financial structure level generally exist convergence trend, but the convergence condition vary from region to region. The comparison study of different regions indicates that the absolute level of financial development in midwest region is higher than that of east region. Beside, the dual financial structure level of midwest region do not show the evidence of convergence and the divergences among the provinces in the midwest region are prominent. However, the convergence process of dual financial structure in the east region is relatively sustainable.(2) Dual financial structure is influenced by dual economic structure, the institutional discrimination and defective financial system. Moreover, the effects of the impact on dual financial structure by those factors are different in different stages of financial development. Specifically, dual financial structure is mainly determined by productivity, financial intervention in the stage which financial development level is relatively low. However, productivity, income gap and financial legality are the core factors which drive the dual financial structure in the stage which financial development level is relatively high. The empirical study of this paper also proves that the quantitative relation between financial development and economic growth can hardly explain the changes of dual financial structure.(3) The aggregation-diffusion effect is the endogenous mechanism which drives the urban-rural dual financial structure transform from formation to convergence. In the primary stage of financial development, the development of rural financial sector gives impetus to the urban financial development. However, the aggregation effect is restricted to the optimal scale. Thus, in the long run, the urban financial sector would eventually boost the development of rural financial development. Therefore, the relation between urban financial development and rural financial development is not mutex relation but a mutual promotion relation.(4) The impact of economic transformation on the formation and convergence of dual financial structure shows a threshold effect. The change of dual economics follows a nolinear path which shows a prominent threshold property. The influence on the convergence of dual financial structure of conomic tansformation also presents threshold effect. The empirical study indicates that urbanization and marketization would accumulate the convergence process of dual financial structure when they reach the threshold level. The change of deposit and investment structure would not appear at the incipient stage of urbanization. Nevertheless, the market mechanism is not always effective. The precondition for effective allocation of resources by market mechanism is that the market system is perfect.(5) To optimize the dual financial structure, the path selection and policy objectives should focus on the long-term effect and comprehensively consider the period characteristics, conditions and regional characteristics of the convergence process of dual financial structure. The convergence of dual financial structure are mutually drived by dual economic transformation, fair institution suppy, mechanism transformation and financial spreading effect etc., therefore, optimizing the dual financial structure should focus on the conditions of economic development, institution, mechanism and stages of financial development instead of financial supply. Actually, although supply oriented financial intervention policy meet the short-term convergence goal, but overemphasize short-term objective with excessive financial intervention often lead to efficiency loss, and the convergence process is unsustainable. In addition, financial policy formulation must consider the regional disparity. The regional economic development levels gradually increase from the west region to the east region. The development pattern, stage and condition of financial development in midwest region are quite different from that of east region. Thus, financial policies of different regions should be different and pertinent.The possible innovations of this paper include the following aspects:First, from the perspective of the interaction relation between rural financial development and urban financial development, this paper reveales the internal mechanism that drives the dual financial structure varied from differentiation to convergence. This paper abandon the traditional research paradigm of dual financial structure, but chose to start from the structural perspective, introducing economic factors, institutional environment, economic transformation etc. into the analysis framework, analyzing the evolution of dual financial structure and the influencing factors under the condition of dual economic structural transformation. Meanwhile, this paper holds that the formation of the dual financial structure is not only the result of the impact of external factors but also the result of endogenous development of the financial system. Thus, this paper analyzes the internal mechanism of variation of financial structure from aggregation effect to spread effect. Then the futher analysis reveals the relation between the variation and change of dual financial structure.Second, this paper structures a comprehensive evaluation index system of the dual financial structure from the macro, meso and micro levels. This method improves the accuracy and operability of the empirical research. Previous researches in the analysis of dual financial structure problem are often trapped in the data. Previous researches on dual financial structure mostly stay in the theoretical deduction or estimate dual financial structure with simple descriptive statistics, therefore those studies are lack of both scientific and systematic verification. Few empirical studies draw some conflictive conclusions either by using single factor or by applying unreasonale measures. Based on the financial structure theory, financial fuction theory and financial institution theory, this paper clarifies the concept of dual financial structure and constructs evaluation indexes system from the perspective of macro level, meso level and micro level. These indexes combined with quantitative and qualitative indicators, static and dynamic indicators, overrall and regional indicators. On the basis of the indexes system, this paper analyzes the convergence of dual financial structure in China. The results of this paper provide theoretical basis and impirical evidence for policy making.Third, revealed the dynamic impact of economic transformation on dual financial structure which changes from “aggravation” to “convergence” by applying threshold effect model. Most of the previous researches of dual financial structure based on static analysis methods that neglect the possibility of nonlinear relation and variability of parameters. Therefore, the inpirical studies based on this method are instable. As Lucas(1976) stressed that assumes the paramters of dynamic econometric models are constant are unreasonable. Thus, this paper introduces China's transformation process into the model, analyze the impact on dual financial structure of urbanization and marketization in different stages. The impirical sduty using China's provincial panel datas reveals the threshold effect that the impacts on financial structure of economic transformation change from “aggravation” to “convergence”. Besides, this paper also estimates the regional difference of formation of dual financial structure by dividing the country into midwest region and east region.Fourth, based on the characteristics of the convergence of the dual financial structure, this paper draw the conclusion that the path of convergence of dual financial structure would change from relative convergence to absolute convergence, from conditional convergence to endogenous convergence, from regional convergence to national convergence. Thus, this paper put forward that the policy choice for convergence of dual financial structure should set optimizing mechanism, institution and structure as the major targets. The changes of dual financial structure are subject to some complex external conditions. These conditions include economic conditions, such as resources, technology, system, etc., and also include the environmental conditions such as culture, consciousness, idea etc.. The pattern of split between urban financial sector and rural financial sector is formed by the long-term accumulation and self-enhancement in the process of industrialization. There is no means could creat equal conditions for development of both rual and urban ereas. Thus, the existence of dual financial structure is objectivity, periodic and conditioned. The target for control of dual financial structure should focus on the long-term process of economic structure transformation and follow the path which changes from regional convergence to national convergence, from relative convergence to absolute convergence, from conditional convergence to endogenous convergence.