The Pattern Of China’s Inter-Provincial Capital Flows And Its Impacts

According to the expectation of Neoclassical Theory, international capital will flow from developed countries to less developed ones. Similarly, domestic capital will flow from developed regions to less developed ones, too. However, searchers found that since the Reform and Opening from 1979, China’s inter-provincial capital flows contradict the prediction of the theory. Domestic capital flows uphill from the relatively poorer regions of Central and Western to the wealthy Eastern region.To better understand the rules and mechanisms of domestic capital flows from a quantitative point of view, this paper uses the output-income ratio to examine the direction of net capital flows between China’s provinces and regions. Procedure is as follows:build an empirical model based on neo-classical framework; use China’s provincial-level panel data to process fixed effects regression analysis. This paper found that inter-regional capital flows do flow uphill to developed Eastern region. In general, China’s inter-provincial capital flows present the following three characteristics:First, capital flows from provinces with slower economic growth to faster-growing provinces; Second, capital flows from more developed to less developed provinces; Third, the growing trend of capital inflows or outflows among provinces shows a trend of convergence under conditions. This paper also gives a qualitative analysis of inter-provincial capital flows from the perspective of different channels, to examine the relationship between capital flows and the regional gaps as well as economic growth. The point is that under China’s specific national conditions, the Government should take measures to actively guide the trans-regional configuration of the capital, and pave the way for the balanced regional economic development and sustainable growth.