2018 8th International Conference on Education, Management, Computer and Society (EMCS 2018)

Convergence Analysis of Financial Development in Province

Lin Tang Yufeng Wang School of Economics,Sichuan School of Economics,Sichuan Agricultural University Agricultural University , Chengdu,China [email protected] [email protected]

Abstract—In order to study the development of regional finance in Sichuan Province, this paper uses entropy method to construct the comprehensive evaluation index of financial development level from 2010 to 2016 in Sichuan Province.Combining with the basic economic data of the cities and states, the convergence of the financial development level of the cities and states in Sichuan Province is analyzed by using the regression method. The analysis shows that there are great differences in the financial development of Sichuan Province, but there is a convergence trend of the whole.

Keywords—Regional finance, Comprehensive evaluation index, entropy method, Convergence analysis

I. INTRODUCTION With the rapid development of China's financial industry, the scale of financial assets has expanded rapidly, the function of financial agglomeration has been gradually enhanced, and the financial services were continuously improved. However, along with this, the problem of regional financial development emerged gradually, and the imbalance of financial resource allocation became more and more serious. Sichuan, as one of the eight experimental zones of comprehensive innovation reform, has not only injected new vitality into the economic development of the whole province, but also promoted the development of the financial industry. However, the level of financial development in the province is still not ideal. In order to improve this situation, the core problem of the uneven development of regional finance in Sichuan should be solved first, so as to narrow the development differences among the cities and states of Sichuan Province, and improve the comprehensive ability of regional financial development. And then strengthen the overall level of financial development in the province.

II. LITERATURE REVIEW

A. Research on the Theory of Financial Development Robert M. Solow put forward the new classical economic growth model in the 1950s. By the middle of 1960s, the economic growth model has become a main theoretical paradigm of regional development. Convergence is an important corollary of new classical economic growth theory, which means that the income gap between countries or regions narrows gradually with the passage of time. Raymond.W.Goldsmith (1969) proposed to measure the financial structure and the level of financial development of a country by the index of finance-related ratio, that is, the ratio of the value of financial assets to the total amount of economic activity.Magda Bianco (1997) Through the comparative analysis of the financial system of many countries, it shows that the convergence of financial system is limited.

B. Empirical Study on Convergence of Financial Development In China, there are three kinds of methods to test the convergence of regional financial development: α convergence, β convergence and club convergence. Lu Wenxi and Li Guoping (2004) took the financial correlation ratio as the measure index and used the β -convergence test method to analyze and find that the regional financial development of our country has obvious stage and regional convergence characteristics. Zhou Qing, He Qiang, and Xu Pan (2010) took the eastern coastal province as an example, used the economic growth convergence theory as the foundation, carried on the empirical analysis to its convergence problem. It is concluded that there is no absolute convergence between the economy of coastal provinces, but only the conditional convergence of stages. Zhang Tao, Gu Xiaoan and Du Fengjiao (2013) used data from , Zhejiang Province and Jiangsu Province from 1978 to 2011 to study the differences in financial development in the Yangtze River Delta region. The result of convergence test of FIR showed that there is no absolute convergence of financial development difference in Yangtze River Delta region, and the financial development difference has a trend of further expansion. Zhang Guangfeng (2011), as an index to measure financial development, made an empirical analysis of the convergence of financial development in 63 counties and cities of Jiangsu Province and the three regions of Southern Jiangsu, Central Jiangsu and Northern Jiangsu from 1999 to 2009. It is proposed that it has the characteristics of β absolute convergence in general, but slightly divergent from 2007 to 2009.

C. Literature Brief Review To sum up, it is found that when domestic scholars studied the convergence of regional financial development in China, the research objects were mostly developed areas or provinces along the southeast coast, but there was no empirical analysis on the

Copyright © (2018) Francis Academic Press, UK 109 DOI: 10.25236/emcs.2018.028 convergence of regional financial development in Sichuan Province at present. Secondly, most scholars used the single index of financial correlation ratio to measure the level of financial development, which could not reflect the level of financial development in a region comprehensively and objectively. Therefore, this paper constructs an index system to evaluate the development level of regional finance, and studies its convergence.

III. EVALUATION OF REGIONAL FINANCIAL DEVELOPMENT LEVEL IN SICHUAN PROVINCE BASED ON ENTROPY METHOD Based on the existing research, this paper selects 9 financial indexes related to calculate the financial comprehensive score of Sichuan Province. The meaning and calculation process of each index are shown in Table I.

TABLE I. EVALUATION INDEX OF REGIONAL COMPREHENSIVE FINANCIAL CAPABILITY IN SICHUAN PROVINCE Index Explanation Calculation Ratio of employees in the financial sector Size of regional financial institutions Financial practitioners / total employees Deposit and loan ratio Financial services affordability Renminbi loans / renminbi deposits Relationship between financial upper structure and Financial correlation ratio Deposit+loan / GDP economic base structure in scale Evaluating the effectiveness of capital allocation Regional GDP increase / total fixed Investment efficiency coefficient from the Input-output Perspective asset investment Increase in savings deposits / disposable Rate of saving Savings capacity of the financial system income Degree of development of regional insurance Insurance depth Premium income / GDP industry Insurance density Chengdu, where residents of the region are insured Premium income / total local population Government revenue / total population Per capita revenue (ten thousand) Regional economic development level of the region Total market value of listed companies Regional capital market and economic strength — (ten thousand) This paper selects the relevant data from 2010 to 2016 to measure the level of regional financial development in Sichuan. The data are from Sichuan Statistical Yearbook 2011-2017 and Wind Information. Quantitative evaluation methods include principal component analysis, data envelopment analysis, entropy method and so on. Based on entropy method, this paper makes quantitative analysis and measurement of financial development level in Sichuan Province. According to calculations, 21 cities and states in Sichuan Province scored their financial scores for 2010-2016 as shown in Table II.

TABLE II. COMPREHENSIVE EVALUATION OF REGIONAL FINANCIAL DEVELOPMENT IN SICHUAN PROVINCE

Cities 2010 2011 2012 2013 2014 2015 2016 Chendu 5.5073 5.1989 5.1493 5.219 5.8336 5.386 4.9574 3.884 3.7153 3.7588 3.8232 4.3229 3.9121 3.7543 3.9741 3.8142 3.8722 3.9224 4.4348 3.9163 3.9044 3.9307 3.8168 3.8807 4.0067 4.5991 4.1883 3.9913 4.2695 4.0182 4.0344 4.0892 4.6133 4.1758 3.9869 4.3987 4.1302 4.1209 4.1854 4.7331 4.3004 4.0278 4.1091 3.9037 3.8997 3.962 4.4702 3.9303 3.6815 Suining 3.8554 3.6975 3.7403 3.8392 4.3863 3.9888 3.7801 3.752 3.6273 3.6752 3.7642 4.2559 3.8203 3.6786 4.1496 3.9205 3.9732 4.0681 4.6426 4.1659 3.9872 3.9822 3.8247 3.8764 3.9689 4.4949 4.0785 3.8582 3.7809 3.6773 3.7698 3.8844 4.4471 3.9897 3.8431 4.0401 3.8616 3.9046 3.9798 4.5086 4.1211 3.9379 Guang’an 3.8525 3.6985 3.7604 3.8582 4.394 3.995 3.7565 3.77 3.7089 3.7643 3.8684 4.4266 4.0741 3.828 Ya’an 3.6855 3.6479 3.6884 3.8555 4.463 3.9365 3.7597 3.5822 3.4716 3.6345 3.7748 4.341 3.9714 3.7618 Ziyang 3.8 3.6752 3.739 3.8484 4.3716 3.9419 3.8071 Aba 4.1013 3.9533 3.8741 3.906 4.4449 3.9247 3.8602 Ganzhou 3.7238 3.6347 3.6928 4.015 4.3515 3.8937 3.7446 Liangshan 3.7275 3.669 3.7409 3.828 4.3489 3.9223 3.7468 In recent years, the overall development of the financial industry in Sichuan shows an upward trend, but there is a certain gap in the financial development level of the five economic zones. Economic Zone is a priority, followed by

110 South Sichuan Economic Zone, Northeast Sichuan Economic Zone and Western Sichuan region. The reason is that Chengdu Plain Economic Zone is the core region of radiation driving the development of the whole province, and the level of financial development is relatively high. The South Sichuan Economic Zone is a multi-core economic region composed of four cities in the south of , and the scale of financial development is the second. The financial development level of the four cities in the region is quite similar, the difference is weak. Compared with the former two economic zones, the development level of Northeast Sichuan Economic Zone is relatively backward, and the most typical characteristic is that the scale of financial development among cities is also uneven. The level of financial development in western Sichuan is generally lower and the difference between regions is obvious.

IV. AN EMPIRICAL ANALYSIS OF THE CONVERGENCE OF FINANCIAL DEVELOPMENT IN SICHUAN PROVINCE

A. Test of σ Convergence In order to study the existence of σ convergence in various regions of Sichuan Province, the following analysis is carried out by means of the test method of σ convergence (see Table III). From Table III, we can see intuitively that the standard deviation of the financial comprehensive score in each region is convergent as a whole. This indicates that all regions in Sichuan Province have the characteristics of σ convergence as a whole. The coefficient of variation is further introduced to analyze whether it has convergence characteristics. It can be seen that the variation trend of the coefficient of variation and the variation trend of the standard deviation are in the same direction.

TABLE III COMPREHENSIVE SCORE OF FINANCIAL DEVELOPMENT IN SICHUAN PROVINCE Year 2010 2011 2012 2013 2014 2015 2016 Mean value 2.4804 2.7838 2.7112 2.6226 2.1432 2.6982 2.1427 Standard deviation 1.0744 1.1806 1.0880 0.8052 0.6679 0.8147 0.3317 B. Test of β Convergence The test of absolute β convergence. Use the test equation of β convergence, the OLS model is established to regress the comprehensive evaluation index of Sichuan finance from 2010 to 2016. The results are shown in Table VI. The β estimated value of the comprehensive index of financial development in Sichuan Province is -0.808, which is significantly negative at the significant level of 1%, and the fitting degree of the regression equation is better. The regression results show that there is absolute β convergence in the development of regional finance in Sichuan province. The test of relative β convergence. In order to reflect the influence of regional factors on the convergence of regional financial development, four regional virtual variables are introduced: East Sichuan, Central Sichuan, South Sichuan and Northwest Sichuan. In order to avoid multiple collinearity, the virtual variables in East Sichuan are ignored when the new OLS model is established. Again, the β convergence test equation is used for regression (see Table IV). The results show that the regression equation fit is higher (R2 is larger) and the initial level of financial development is significantly negative at the level of 1% significance. The estimated value of β is -0.849, which indicates that there is a condition of β convergence in the regional financial development of Sichuan Province.

TABLE IV TEST RESULTS OF Β CONVERGENCE OF FINANCIAL DEVELOPMENT IN SICHUAN PROVINCE

— OLS1 OLS2 Constant 0.602 0.534 β -0.808 -0.849 Adjusted R2 0.934 0.941 P value 0.002 0.001 C. Test of Club Convergence In order to investigate the existence of club convergence in the development of regional finance with the same economic basis in Sichuan Province, this paper applies the test method of club convergence to the central and southern Sichuan provinces, respectively. East Sichuan and northwest Sichuan and other four economic zones for empirical testing (see table VI). The results of the test show that from 2010 to 2016, the estimated value of the financial comprehensive score of each city in the central, southern, eastern and northwest economic zones of Sichuan was less than zero, and passed the significant test of 5%, and was close to 1. This shows that the four economic zones in Sichuan Province all show the characteristics of club convergence. The main reason is that the foundation and condition of the financial development in the four economic zones are homogeneous, which makes the allocation of financial resources in each city more balanced, and the financial development speed of each city in the region tends to be consistent. The steady state convergence of the region is formed.

TABLE V BASIS FOR THE DIVISION OF THE FOUR MAJOR ECONOMIC ZONES OF SICHUAN PROVINCE Four economic zones Cities Central Sichuan Chengdu, Mianyang, Deyang, Suining, Ya’an, Meishan, Ziyang, Leshan South Sichuan Zigong, Yibin, Luzhou, Neijiang East Sichuan Nanchong, Dazhou, Guangyuan, Bazhong, Guangan Northwest Sichuan Panzhuhua, Liangshan, A’, Ganzi

111 TABLE VI TEST RESULTS OF CONVERGENCE OF SICHUAN FINANCIAL DEVELOPMENT CLUB Economic region Constant βvalue Adjusted R2 Pvalue Central Sichuan 0.7768 -0.9287 0.8682 0.000 South Sichuan 0.7209 -0.9178 0.6670 0.001 East Sichuan 0.5137 -0.7868 0.8414 0.018 Northwest Sichuan 0.4486 -0.6821 0.8555 0.002

V. CONCLUSIONS AND POLICY RECOMMENDATIONS

A. Conclusions According to the above analysis, first, each region in Sichuan Province has the characteristic of convergence from 2010 to 2016. It reflects that the absolute gap of financial development between 21 cities and states in Sichuan Province has the trend of narrowing gradually. Second, there are absolute β convergence and conditional β convergence in the development of regional finance in Sichuan Province. Absolute β Convergence reflects the difference of Financial Development and growth depending on Capital level in different regions of Sichuan Province. The condition β convergence with higher fitting degree shows that, besides the difference of initial capital level, other factors such as structure and institution also restrict the development of finance. Although the cities and states with poor financial development level in Sichuan Province are constantly catching up, the and county financial development has shown obvious convergence characteristics, the steady state of each economic zone is different, and the system and structure of the economy are not changed. The level of financial development in various regions will still maintain a certain gap. Third, the four economic zones in Sichuan Province show the characteristics of club convergence and regional steady convergence in economic development. The homogeneity of financial development and the equilibrium of resource allocation are conducive to coordinated development and steady progress of economy.

B. Policy Recommendations The main contents are as follows: it is necessary to strengthen the radiation function of central Sichuan to the whole province, to provide financial services across different regions, and to solve the problems of small amount of financial support, less institutions and slow growth rate in other regions, so as to promote the coordinated development of regional finance in the whole province. Speed up the adjustment of local industrial structure, to speed up the optimization and upgrading of the industrial structure of various regions on the premise of highlighting their own industrial characteristics, to give priority to supporting the development of high-quality enterprises in various regions, and to give preferential financial and tax benefits to them. Financial institutions are encouraged to lower the credit threshold for high-quality enterprises in various regions, increase the combination of production and finance, and actively guide the flow of funds to backward areas.

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