"Financial Polarization" Analysis Paradigm Research

With the universal development of the integration of the world economy and regional economies, financial centers have attracted more and more attentions for their significant influences on the development of regional economies; these researches on financial centers are also becoming increasingly abundant. But so far none of those is able to provide a satisfied explanation about the formation of financial centers. The basic problems those financial center theories need to answer are why financial center grows in here rather than there? And what factor(s) exert important influences on the occurrence and development of financial centers? And how do these influences happen?The thesis reviews these existing theories on the formation of financial centers, and analyses their defects respectively. Through the reconsideration of the limitations of these existing theories, the thesis advances a new analysis paradigm on the causes of formation and development of financial centers based on the theories of financial development and economic polarization. With the paradigm, the thesis analyses many mechanisms resulting in the polarization of financial spatial development. The thesis concludes that the formation and development process of financial centers is that of the regional financial polarization. Financial polarization means that during the unbalanced development of regional finance, the financial industry of minority regions can obtain more rapid development than their peripheries’ because of their various favorable advantages, thus these minority regions develops attraction to the financial resources of their peripheries and draws them inflowing, which resulting in the continuous accumulation and expansion of their financial development advantages, finally their financial development levels are significantly higher than that of their surrounding areas and they become the growth pole of regional finance development.The thesis consists of eight chapters, their main contents are as follows:Chapter1is the introduction, reviewing the progress of the theories of the formation of financial centers, appointing out the inadequacy of their arguments, and putting forward the main ideas of the thesis.Chapter2elaborates some relevant content about the theories of financial development and economic polarization as the foundations of financial polarization analysis paradigm.Chapter3analyses the mechanism between economic polarization and financial polarization. The thesis advances that the relation between economic polarization and financial polarization is a positive incentive connection, which is realized by two channels and four effects, they are:the real economy channel and the financial economy channel, the investment agglomeration effects (IAE), home market effects (HME), capital in-drawing effects (CIE) and credit expansion effects (CEE). IAE and HME corresponds to the real economy channel, the former means investment funds inflow the central region from peripheral ones due to higher rate of return on investment in the central region than that in peripheries, the latter suggests a stable currency movement from peripheral regions to the center because the central region has a trade surplus. CIE and CEE corresponds to the financial economy channel. The former means that with the advantage in stock and bond markets and so on, the central region can gain net capital flows through capital markets, the latter infers that the inflows attracted by the above mentioned three effects are multiplied through commercial bank system.Chapter4discusses the influences of spatial-choice behavior of financial subject on financial polarization. The thesis deems that financial enterprises usually choose those gathering places of capital, human, natural and information resources. And all these kinds of flows are identical in many cases. Therefore, the location choices of financial enterprises are also convergent. This is a key factor causing financial agglomerations. There usually occurs financial agglomeration in these areas with rapid economic growth and where large centers of shopping and trade locate. By model analysis this part reveals several fundamental regularity of the spatial structure evolution of financial markets, and clarifies the roles played by such factors as the advantage of location, communication conditions and etc. in the process of financial polarization.Chapter5analyses the effects of financial innovations on financial polarization. The thesis considers that financial innovations can contribute to the development and enhancement of financial polarization. Two approaches achieve this role:the first is that financial innovations promote the financial competitiveness of the central area directly with the following mechanisms:attracting money funds through enriching diversities of financial products; increasing scale economies effect greatly by joint with modern information technologies; consolidating the existing status of the financial centers through strengthening the independence of the financial industry relative to the real economy. The second is by impelling the regional economy growth to drive its financial development. Financial innovations are not only conducive to improve the regional monetary supply ability, but also helpful to cut down the financing cost, stimulate consumption, reduce risks, and thus enhance the regional economic development, and further promote the financial polarization.Chapter6analyses the influences of the progresses of information technology on financial polarization. The thesis points out the progresses of information technology impel the regional financial polarization mainly by incurring financial innovations, increasing the advantage of scale economies, reducing the information asymmetry of financial markets, improving the markets activity and funds transfer function and so on.Chapter7consists of two aspects. Firstly, analyses on the impacts of economies of scale, economies of scope and economies of agglomeration on financial polarization. The thesis contends that their influences not only lie in strengthening the existing financial agglomeration, but also giving mighty first-mover advantage for the early financial centers. Therefore their status as financial centers is are difficult to be replaced by the latter ones. Secondly, argues on the impacts of political and economic system, legal environment, government behavior on financial polarization. The thesis argues that these factors exert positive or negative influence on financial polarization. The law affects financial polarization through various ways. Favorable legal environment and the protection of property rights are helpful to enhance enterprise capital accumulation, optimize capital structure, and raise the value of companies and the efficiency of market transactions. For those leading cities in economic and financial fields, their advanced level may be the results of good law environment, and meanwhile an important condition to maintain the leading status in the future.Chapter8supplies some proofs to support the financial polarization theory by analyzing the causes of the development of financial centers in Shanghai and Shenzhen. Analytical results confirm the basic theoretical viewpoints.