An Empirical Study On IFDI And Capital Market Segmentation Of Yangtze River Delta Region

Since the reform and opening-up, China’s economy has developed rapidly. However, With the establishment of China’s market economy status, local protectionism and regional market segmentation has become a big obstacle in China’s economic development. Nowadays, The Yangtze River Delta region has become the leader of Chinese economy, in the circumstance of integration of global economy, the market integration process develops quickly, but local protectionism and regional market segmentation have severely hindered the integration process and have unfavorable effects on economic development. In addition, Yangtze River Delta region is the largest gathering place for IFDI, IFDI has a profound impact on regional market segmentation by theoretical analysis, therefore, the article will conduct research centering on the relationship between IFDI and capital market segmentation of Yangtze River Delta region, attempting to provide a new perspective to break the market segmentation.Based on the theoretical analysis of IFDI and Yangtze River Delta market segmentation, the paper adopts relative price method to calculate the capital goods market segmentation index of the Yangtze River Delta region. Then we use panel data covering two provinces and one city of the Yangtze river delta from year 1994-2013, studying the relationship between IFDI and Yangtze RiverDelta Regional market segmentation from the empirical point of view. The paper finds the following results:the degree of market segmentation trends of Shanghai, Jiangsu and Zhejiang present descent trend on the whole, and the Yangtze River Delta region segmentation index shows a stable convergence trend. IFDI relaxes the extent of market segmentation in Yangtze River Delta region, to some degree, foreign investment has weakening effect on capital market segmentation. Under the phenomenon of regional market segmentation, the influences of foreign investment on capital allocation efficiency of host country increase, which means the market segmentation of Yangtze River Delta region strengthens the capital allocation function of IFDI. The effect of IFDI and regional market segmentation on capital allocation efficiency has a role to strengthen each other, that is, the higher the degree of regional market segmentation, the greater IFDI’s influence on the efficiency of capital allocation and vice versa.