| Development of financial innovation makes more financial liberalization and more liberalization of regional capital flows, while it also makes the financial system more complicated, and then brings more financial risk sources. The strengths and weaknesses of financial innovation have been well out of cash in the Asian Financial Crisis(1997), Russian Ruble Crisis(1998), the US Subprime Mortgage Crisis(2007) and other financial crises. These crises are considered from the liquidity risk of international capital suddenly interrupted flows. But none of the financial crisis can be more vigilant attention to the liquidity risk’s perniciousness than the US Subprime Crisis. The Basel Committee has begun to pay more attention to the liquidity risk supervision of commercial banks than ever before; "American Economic Review"(2006) has published a special edition about the “Sudden –Stop” Financial Crisis; National regulators also introduced a series of liberal policies to attract international capital and alleviate domestic capital flight crisis. Correspondingly, the crisis may also occur within the cross-regional capital flows in a country, especially for a vast territory which has a significant difference in Regional economic. With the increasingly fierce competition in China’s regional economy, Regional capital flows increasingly convenient, and Capital competition between provinces also increasingly fierce. For any provinces, the efforts to attract capital are more intense than ever. From this point of view, for a large country like China, the capital flows between domestic provinces may also lead to “Sudden –Stop” Financial Crisis. However, the current theoretical and empirical researches on “Sudden –Stop” Financial Crisis are mainly focus on International capital flow risk, rarely involve provincial capital liquidity risk. To better understand the “Sudden –Stop” Financial Crisis within provincial capital, as well as the roles of financial innovation behind it, it has great theoretical and practical significance for China’s financial development and regional economic development to research on pricing model designed for domestic inter-regional flows of capital risk and roles of financial innovation behind it.By analyzing the financial instability hypothesis, liquidity black hole theory, international capital flows crisis theory and others theories, this paper argues that financial innovation may also lead to the “Sudden –Stop” Financial Crisis within provincial capital, ultimately impact the healthy development of the real economy.Through introducing spatial effects into the F-H model, we deduced a liquidity pricing model about “Sudden –Stop” Financial Crisis within provincial capital, and calculated the value of liquidity risk. The results show that the value have a rapid growth trend in population mean trend after 2010, this suggests that the risk is more severe than ever. Secondly, through the DEA model to estimate the efficiency of financial innovations of every province from 2004 to 2014. It was found that the values of the efficiency of financial innovations are showing a rising trend during the sample period, it suggesting that the financial innovation has a deepening trend in China. Finally, this paper has studied the roles of financial innovation efficiency to the “Sudden –Stop” Financial Crisis within provincial capital by building non-spatial model and spatial panel model, research results indicated that including the liquidity risk and its influencing factors have a significant spillover effects. The most important result is that the financial innovation efficiency significantly contributed to the regional liquidity risk, and which is the hypothesis of this paper. In addition, this paper’s empirical analysis has showed the FDI, local government expenditure as well as the Money Supply have inhibition to the “Sudden –Stop” Financial Crisis within provincial capitalThis paper’ theoretical and empirical research can provide some clearer ideas and methods on the relation between the regional financial development and the “Sudden –Stop” Financial Crisis within provincial capital, Thus can better development of regional finance and more effectively prevent the “Sudden –Stop” Financial Crisis within provincial capital in the future. |
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