The Impact Of Administrative Division Adjustment On Financial Agglomeration

Changes in administrative division level have affected the formation of financial agglomeration directly. There are internal relations between financial agglomeration degree and administrative division level. First, the principal component analysis has been used to measure the financial agglomeration degree of the 17 prefecture-level cities in Shandong Province during the period of 1978-2013. Then, as Rizhao City got upgraded to a prefecture-level one in 1989, which has been dependent from Linyi City, we treat this administrative division adjustment as a basic natural experiment. Next, the impact of the experiment on the financial agglomeration degree of the later Rizhao City, Linyi City and the Integrated Linyi City (the combination of Rizhao and Linyi) will be estimated by the synthetic control method. Finally, extensive research will be made, selecting another two administrative division adjustments (the dependence of Weihai City in 1987 and Laiwu City in 1992) as comparative experiments, which focuses on the city-differentiated impact of the administrative division adjustment on the financial agglomeration degree.The results will be explained from three dimensions. Firstly, the adjustment of administrative divisions has made positive impacts on the financial agglomeration degree of Weihai and Rizhao, and the impacts are not only continuous in time, but also statistically significant. In addition, it has made an immediate impact on Weihai City just as the adjustment occurred, however the impact on Rizhao has been lagging behind the adjustment. Especially, there has been no significant impact on the financial agglomeration degree of Laiwu City through the same upgrading as those two. Secondly, the adjustment produces negative impacts, continuously and significantly, on the financial agglomeration degree of Tai’an and Yantai. Differently, the negative impacts on Linyi are instantaneous, which shows a drastic downward path. After three years reducing, the financial agglomeration degree of Linyi will return to the unadjusted initial level. Thirdly, the impacts of the administrative division adjustment on Integrated Yantai (negative) and Integrated Linyi (positive) are just the opposite, both showing up some hysteresis and non-real-time quality. In addition, no significant impact on the financial agglomeration degree of the Integrated Laiwu has been made by the adjustment.Results of this paper indicate that, for coastal cities with considerable potential, the upgrading of the administrative division has improved the financial agglomeration level of the adjusted city itself; meanwhile, it weakens the financial agglomeration level of the parent city which the adjusted one was attached to. The administrative division adjustment will promote the redistribution of financial resources in the local area, that is to say, the flow of financial capital, financial institutions, financial professionals and financial information will be achieved after the adjustment, thereby affecting the regional financial agglomeration pattern. Nevertheless, for small cities in underdeveloped areas, the upgrading will not produce significant impacts on their own financial agglomeration level in the medium-to-long term, but there will still be negative impacts on the financial agglomeration level of their parent cities.