Exploring Regional Differences In Development Of Internet Finance

As the economy steps into the "new normal",internet finance achieves leap development,which brings attacks to traditional financewith it's unique business model and the way of value creation,and thus becomes a vital constituent of the financial ecosystem.However,internet finance develops rapidly in general along with a pattern of regional differences.Based on the concept of path dependence and new structural economics,we think the theoretical logic of the regional differences of internet finance development is as follows.Under the framework of finance knowledge spillover effects,internet finance is sustaining innovation based on traditional finance rather than disruptive innovation,which results in path dependence.As a logical result of regional differences in traditional finance,eastern cities take the leading position in internet finance in general.Mid-western areas where traditional finance is less developed are trapped in path dependence,however,these areas have potential comparative advantages in internet finance development,because insufficient supply of traditional financial services has left much broad market for internet finance development.Local governments in these areas can make the best use of the situation,and focus on alleviating the crucial constraints such as talent shortage,to promote these areas to get rid of the lock of path dependence and achieve the potential comparative advantages.Empirical researches basing on data from 335 prefecture-level cities support the viewpoint of this paper.It is indicated that,on the one hand,internet finance develops more slowly in areas where traditional finance is less developed,which takes on path dependence obviously;on the other hand,governments play an important role in internet finance development among these areas.This paper shows that,even if factors such as institutional environment,information technology infrastructure,economic growth and spatial dependency of internet finance development are controlled,the empirical results remain robust.Besides,according to the regression results of the sub-index,we found that,compared to the comprehensive development index,development index of investment in internet is more sensitive to the supports of traditional finance and"visible hand".The policy implication of this paper is that,without strong supports from traditional finance,supports from an effective government are necessary for finance achieving corner overtaking.Local governments can focus on hard constraints such as financial talent shortage,and carry out effective industry policy to support internet financial industry,in order to achieve the potential comparative advantage.However,government interference is a double-edged sword:government interference can support the development of internet finance in the early stage,but in the long run will damage the quality of institutional environment,which is bad for the sustainability and health of internet finance development.Therefore,the interference of "visible hand" should not be normalized,but ought to withdraw in time.Governments should stick to maintaining the order of financial market and preventing systemic and regional financial risks.Finally,the sustained and healthy development of internet finance must be relied on market forces.