Financial Agglomeration, Regional Differences And The Impact On Economic Growth

Industrial agglomeration is an important feature of today’s industrial organization development. It can not only become the leading power in regional economic development, but also become the key to enhance the industrial competitiveness for a country or region. Increasing returns to scale, the free movement of factors of production and the lower transportation costs are the important cornerstones of industrial agglomeration’s formation, while the financial industry has an unparalleled advantage in these three areas, thus, the formation of financial agglomeration is more inevitable and reasonable compared to other industries. Foreign experience shows that financial agglomeration plays an increasingly important role in the promotion of region’s economic strength. With its well-rooted economic foundation, financial agglomeration can overcome some bottlenecks such as internal costs inflation quickly and lack of supervision which individual financial institution or financial enterprise is particularly easy to encounter in the development. It can play external economic effects like share, complementary and network to reduce the risk of information asymmetry or failure. It can also accelerate the diffusion of financial knowledge or technology, speed up the pace of financial innovation, and play a profound impact on regional economic development. At present, the character of agglomeration for China’s financial industry in the center city becomes apparent. Most cities are also set a target to develop the financial industry vigorously. However, due to limited to the factors of geospatial and economic foundation, the development level of financial agglomeration is different and the regional disparity is evident. Whether financial agglomeration can fully bring the advantages of scale, market and innovation and become an important driving force of economic growth have yet to be explored.Firstly, combining financial functional perspective, the paper elaborates the mechanism of action and effects that financial agglomeration affects on regional economic growth, and put up with three impact ways like capital accumulation, technological innovation, and industrial structure adjustment on the basis of domestic and foreign scholars’studies. This paper also analyzes the regional distribution and the whole development status of China’s financial agglomeration from four aspects, which are financial industry output, financial resources, financial institutions and financial employees. Based on that, the paper selects multiple indicators to build a comprehensive evaluation system by factor analysis which can better measure the development level of regional financial agglomeration, and then do comparative analysis between regions, in order to define the degree and the feature of each region’s financial agglomeration development in China. Secondly, the paper selects 15 years data from 1998 to 2012 of China’s representative cities to build econometric models, and does empirical test from the linear effect and non-linear effect that financial agglomeration will act on regional economic growth. The results show that, the current level of financial agglomeration is low and regional differences are significant. Financial agglomeration has a positive impact on economic growth, but it’s not the main driving force. Financial agglomeration has an "inverted U" structure and non-linear effect on economic growth actually, however, at present China’s major center cities are in the up stage of this "inverted U" structure, and improve the level of financial agglomeration will inevitably lead to greater contributions to the development of the real economy. What’s more, financial agglomeration impacts on the economic growth mainly through the path of capital accumulation and industrial structure adjustment, and the path of technological innovation is not significant. Finally, the paper puts forward the policy recommendations from three aspects of planning financial agglomeration area reasonably, enhancing the level of financial agglomeration and playing the benefits of financial agglomeration. Specifically, the first is planning the financial agglomeration area reasonably and building a multi-level financial center pattern. The second is to strengthening the government policy support, building a multi-level financial market system and speeding up the construction of financial ecological environment and financial professionals, in order to promote the development level of regional financial agglomeration and achieve the sustainable development of it. The third is playing the benefits of financial agglomeration, increasing the financial support for industry structure adjustment and technological innovation, in order to transform the economic development mode and to serve the real economy better.