Download Difference Analysis of Liaoning Province’s Regional Financial Development

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Difference Analysis of Liaoning Province’s Regional Financial
Development
ZHAO Fulu, LI Haihua
School of Business Administration, Liaoning Technical University, Huludao, China, 125105
[email protected]
Abstract: According to the method of Theil indexes, the text analyses Liaoning Province’s regional
financial development difference from 1978 to 2008, and decomposes the total difference. The results
indicate that total difference of regional financial development mainly comes from difference in the
areas, while the difference of financial development among the areas only forms a small part of the
overall difference. As far as the contribution to total difference, Intra-region is far greater than
Inter-region. From the point of view in the region, the economic zone in central city group contributes
greater to total difference, compared with Western Liaoning coastal economic zone, the Liaodong
Peninsula coastal economic zone. The characteristics of regional financial development difference
presented above correlate tightly with the development difference of regional economy, the deepening of
the market-based reform, the involvement of the local government in the financial development and the
coordinated development policies implemented by central authorities.
Keywords: Regional finance, Theil indexes, Development difference
1 Introduction
In the theory of financial development, the Gurley and Shaw (1955), Goldsmith (1969), McKinnon
(1973), etc. made the pioneering contributions. They regarded the financial market as an economic
activity center. According to their point of view, the quantity and quality of financial services may partly
explain the economic growth. For the analysis of the financial structure, financial repression, financial
deepening and liberalization of financial, they had made people aware of the role of finance and further
explored the ways to financial development. A groundbreaking international research, by Goldsmith
(1969), shows that financial development and economic growth are closely related by using the
economic data of 35 countries from 1860 to 1963. Levine (1997) used 80 countries’ economic data from
1960 to 1989, controlled other important factors of affect economic growth, inspected the effects of
financial development on economic growth, and the results shows that there are significant positive
correlation between the financial deepening and economic growth, and the financial development is a
predictor of the future economic growth. Kul B. Luintel and Mosahid Khan (1999) studied the
relationship of financial development and economic growth by using VAR (Vector autoregression) and
Cointegration (Cointegration) method. And the results shows that financial development and economic
growth has the two-way causality.
The China's regional financial development and economic growth (1978-2000), wrote by domestic
scholars Zhou Li(2004), studied the various regions of China’s financial development and economic
growth during the 1978-2000, revealed the relationship between China's financial development and the
economic growth, and the path of the financial development promote economic growth. Zhang Jie, by
comparing and analyzing "neo-classical equilibrium hypothesis", "cause and effect cycle accumulation
theory" and "Williamson's inverted U hypothesis", thought that regional differences in economic
structure would lead to the regional differences of financial institutional arrangements and financial
structure, and described the phenomenon of the regional convergence of the financial structure and the
thinking of the regional finance showing a similar economic development’s "Williamson's inverted U
hypothesis". He also believed that in China regional financial development difference will be relatively
flat by the convergence of government policy, and proposed that we should actively promote the
"divergence" process, rather than inhibiting this process in the institutional change. Jin Xuejun and so on
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empirically analyzed the financial growth differences from 1978 to 2003, concluded that the financial
growth differences will objectively exist in the long term, and that there is not the inverted U-shaped
curve in the regional financial growth between 1978 and 2003, but shows three curves posture. Zhang
junzhou and Yin Desheng, Xiao Shunxi all analyzed and researched ‘the regional finance" as their topic,
and explored the development situation and development strategy of the region's financial. Zhao Wei
and Ma Ruiyong analyzed China’s regional financial growth differences from 1978 to 2001, and
decomposed the total difference.
Despite the different conclusions of different scholars, but it is certain that between the financial
development and economic growth exists the positive and close contact. However, by these documents it
can be found that regional financial, that has the leading role in regional economic development,
especially inter-province and even intra-province, has not been paid sufficiently attention to. Focusing
on Liaoning Province’s financial development of city economic zones, the paper uses the data from
1978 to 2008, analyzes and decomposed the financial development, lays the foundation for further
theoretical research and local government economic development policy.
2 Analysis of Difference
2.1 Selection of indicators
In the measure of financial growth indicators, Goldsmith proposes “ Financial International Ratio-FIR”
index, which is defined as the value of all financial assets to all physical assets (national wealth), which
is the broadest indicators of a measure of the relative size of the financial upper structure.
McKinnon uses the ratio of the money stock (M2) to the gross national product as a yardstick in the
measure of a country's financial growth, when he studies the financial repression and financial
deepening in developing countries. Therefore, people generally use the ratio of M2 to GDP to measure a
country's degree of monetization of the economy. Because China lacks the statistical data of regions
financial assets and M2, the domestic academic community generally uses the ratio of the sum of bank’s
deposits and loans to gross domestic product in the calculation of related financial ratios. This is because
of that China's major financial assets are concentrated in bank and the bank's most important assets are
deposits and loans. This paper also chooses to aggregate deposits and loans in the calculation of
financial assets.
2.2 Methods of measurement
In order to accurately reflect the degree of regional financial growth differences among the economic
zones and in the economic zones, the share of among three economic zones (economic zones in central
city group, the Liaodong Peninsula coastal economic zones and Western Liaoning coastal economic
zones) in the total difference, and the share of in economic zones in the total difference, we use Theil
index. Because it has the broken properties between the sub-samples, we can break the overall regional
differences into in regional differences and among regional differences by this feature. Therefore, it is
more in line with requirements to compare with bikini coefficient, Atkinson describes and so on in
describing the differences between regions (or unequal degrees) indicators.
Let E, M, W, respectively, the Liaodong Peninsula coastal economic zones, economic zones in central
I
I
I
city group, western Liaoning coastal economic zones, E , M , W , respectively, Theil index indicators
of the Liaodong Peninsula coastal economic zones, economic zones in central city group, western
Liaoning coastal economic zone, representing financial growth differences of the three economic areas,
according to the Theil index definition and formula as:
IE =
IM =
å
å
E
Yi log(Yi / Fi )
M
Yi log(Yi / Fi )
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IW =
å
W
Yi log(Yi / Fi )
Fi represents the total deposits and loans of the i-th city where the proportion of the total
Y
economic zone, i represents the i-th city’s GDP accounts for the i-th economic zone where the
Where
proportion of total GDP, for the city's for the i-th economic zone where the proportion of total GDP.
FE , FM , FW , Representing the total deposits and loans of the Liaodong Peninsula coastal economic
zones, economic zones in central city group, western Liaoning coastal economic zone in the province's
Y Y
Y
proportion of total deposits and loans, E , M , W , representing the Liaodong Peninsula coastal
economic zones, economic zones in central city group, western Liaoning coast Economic Area's GDP
accounted for the proportion of the province's total GDP. If the economic zones with a weight of total
GDP, We can have the indicators of inter-regional differences:
I D = YE log(YE / FE ) + YM log(YM / FM ) + YW log(YW / FW )
Theil index can be broken down in among zones and in zones, that is, the overall differences is equal to
the differences in the region and among regional differences, this is the Theil index’s decomposition and
be added properties. Therefore, If the economic zones with a weight of total GDP, We can also have the
indicators of overall differences:
IT = I D + YE I E + YM I M + YW IW
The size of the Theil index shows that all regions within the scope of the study changes in the financial
growth of the size of the gap, and we can clearly see the change gap between the year in the dynamic
process by the use of Theil index time series, this paper expressed this dynamic process by Index Line.
According to the results, in 1978-2008 years, the maximum value of the total financial growth gap in
1982, the Theil index is 0.029125 (Table 1), the minimum occurred at 1998, the Theil index is 0.006175.
The reason is mainly that intra-regional disparities in the total gap played a role in the absolute, while
inter-regional disparities are very small. This can further be seen by the contribution rates of
intra-regional disparities and inter-regional disparity to the total. After 1981, in the whole, western
Liaoning coastal economic zones is generally higher than economic zones in central city group in the
financial growth gap, and economic zones in central city group is also generally higher than the
Liaodong Peninsula coastal economic zones. It can further be seen that the dynamic process in the three
major regional financial gap growth (Figure 1).
Central City
Coastal western Liaoning
Liaodong Peninsula
0.06
0.04
0.02
Figure 1
20
08
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
19
82
19
80
19
78
0.00
Liaoning’s financial differences within the three major economic zones
In 1978 to 1981, western Liaoning coastal economic zone shows the upward trend in the financial
growth gap, and then a downward trend, in 1984 reached its lowest point, then began to rise. And
financial growth gap shows a downward trend after 2000. Economic zones in central city group show
the downward trend before 2000, then a upward trend, and a downward trend after 2005. The Liaodong
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Peninsula coastal economic zone is relatively stable in the whole.
Between 1978 and 2008, the inter-regional financial disparities was overall relatively stable, the Theil
index value largely remains at 0.008 or less (Figure 2), starting slightly upward after 2002.
Intra-regional disparities from 1978 to 1989, a downward trend, after a slow rise , and reached the
maximum in the 2001, then gradually began to shrink, as a whole showed a similar economic
development, "Williamson inverted U hypothesis" feature. Because the vast majority of the overall
difference comes from the Intra-regional gap, the trend is almost the same as Intra-regional disparities,
in 2001 reached the maximum, and then the gap began to decline. Overall, the convergence trends
emerged from the financial gaps among the region and in the region, toward convergence direction,
future cross possible.
Inter-region
Intra-region
T he total
0.04
0.03
0.02
0.01
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
0.00
Figure 2
Liaoning’s financial comparisons within inter-regional and intra-regional differences
Table 1 The overall decomposition of the regional financial growth gap in Liaoning Province between 1978
and 2008
Central Cities Coastal Western Liaoning Liaodong Peninsula Inter-group Intra-group The Total
Year
IM
IW
IE
ID
IT - I D
IT
1978
0.045047
0.007796
0.000491
0.001579
0.026081
0.027660
1979
0.036606
0.025434
0.000240
0.001242
0.024408
0.025650
1980
0.030145
0.021089
0.007328
0.005926
0.022221
0.028147
1981
0.024435
0.036525
0.009897
0.002161
0.022426
0.024587
1982
0.024899
0.034730
0.006468
0.006990
0.022135
0.029125
1983
0.015719
0.030836
0.006302
0.007810
0.016400
0.024210
1984
0.015269
0.001041
0.009619
0.006894
0.011089
0.017983
1985
0.014891
0.010672
0.011507
0.005760
0.013174
0.018934
1986
0.009784
0.008593
0.000405
0.006099
0.007082
0.013182
1987
0.008029
0.012116
0.000366
0.005475
0.006764
0.012239
1988
0.008151
0.007181
0.000073
0.003028
0.005681
0.008710
1989
0.008035
0.006337
0.000056
0.001491
0.005495
0.006986
1990
0.010521
0.005873
0.000160
0.001151
0.006749
0.007900
1991
0.011290
0.004285
0.001822
0.003108
0.007191
0.010299
1992
0.006891
0.007548
0.004308
0.003243
0.006312
0.009555
1993
0.010574
0.012701
0.005078
0.002693
0.009461
0.012154
1994
0.009179
0.019067
0.004912
0.001594
0.009950
0.011544
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1995
0.007578
0.015643
0.004640
0.002081
0.008358
0.010439
1996
0.005441
0.020099
0.001534
0.000929
0.007190
0.008119
1997
0.006791
0.023381
0.017697
0.000148
0.013432
0.013580
1998
0.004315
0.020046
0.000054
0.000186
0.005988
0.006175
1999
0.005736
0.024315
0.000272
0.000045
0.007385
0.007430
2000
0.013840
0.040410
0.000709
0.000143
0.014508
0.014650
2001
0.018563
0.028196
0.000787
0.000097
0.014614
0.014711
2002
0.014360
0.023584
0.000676
0.000067
0.011538
0.011605
2003
0.017157
0.019902
0.001001
0.000297
0.012373
0.012670
2004
0.018624
0.017289
0.001555
0.000420
0.012811
0.013230
2005
0.020537
0.014852
0.004696
0.001168
0.014414
0.015582
2006
0.015660
0.014562
0.004898
0.001178
0.011935
0.013113
2007
0.011353
0.009892
0.004834
0.001571
0.008976
0.010548
2008
0.012235
0.009978
0.005805
0.001903
0.009740
0.011643
Further examine the contribution that the growth gaps among regions and in regions to the overall gap.
From:
IT = I D + YE I E + YM I M + YW IW
1 = I D / IT + YE I E / IT + YM I M / IT + YW IW / IT
Then
I D / IT is the contribution ratio of inter-regional financial disparities to the overall gap.
YE I E / IT , YM I M / IT , YW IW / IT representing intra-regional disparities of the Liaodong Peninsula
Where
coastal economic zones, economic zones in central city group, western Liaoning coastal economic zone
to the overall gap. The sum of these three statistics is the contribution ratio of intra-regional disparities
to overall. It reflects the impact extent on the overall gap.
The intra-regional contribution reaches the maximum, 99.43%, in 2002. Before 1986, it overall shows
downward trend in the contribution rate, then gradually began to rise, reached the maximum in 2002,
then begin to decline, which is due to the inter-regional gap gradually decreased until 2002, started to
rise after that (Table 2 ). The inter-regional contribution reaches the minimum, 0.57%, in 2002. Its
contribution rate trend is the opposite with the intra-regional. After 2002, it began to rise gradually.
From the point of view in the region, economic zones in central city group contributes great to total
difference, compared with Western Liaoning coastal economic zones, the Liaodong Peninsula coastal
economic zones. The average contributions to overall, economic zones in central city group, Western
Liaoning coastal economic zones and the Liaodong Peninsula coastal economic zones, are 51.48%,
24.44%, and 7.41%. Although the intra-regional contribution is declining, and the inter-regional
contribution on the rise, the intra-regional contribution is still much larger than the inter-regional.
Year
1978
Table 2 The contribution of among and in three regions to the overall gap
Contribution of
Contribution of
Intra-regional
Inter-regional
Contribution of
Coastal Western
the Liaodong
Contribution
Contribution
the Central City
Liaoning
Peninsula
89.40
4.36
0.53
94.29
5.71
1979
78.80
16.09
0.27
95.16
4.84
1980
57.03
14.94
6.98
78.95
21.05
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1981
53.06
29.42
10.79
93.27
8.79
1982
46.13
24.14
5.73
76.00
24.00
1983
35.69
25.55
6.50
67.74
32.26
1984
47.32
1.13
13.21
61.66
38.34
1985
42.80
11.79
14.99
69.58
30.42
1986
39.80
13.12
0.81
53.73
46.27
1987
35.30
19.16
0.80
55.26
44.74
1988
49.67
15.32
0.24
65.23
34.77
1989
60.42
18.01
0.22
78.66
21.34
1990
69.77
15.12
0.55
85.43
14.57
1991
56.14
8.80
4.89
69.82
30.18
1992
36.82
16.71
12.54
66.06
33.94
1993
44.00
21.98
11.87
77.84
22.16
1994
39.64
33.96
12.59
86.19
13.81
1995
35.76
30.92
13.38
80.06
19.94
1996
33.11
49.68
5.77
88.56
11.44
1997
24.69
33.87
40.35
98.91
1.09
1998
34.43
62.28
0.28
96.99
3.01
1999
38.49
59.73
1.17
99.39
0.61
2000
47.48
50.02
1.53
99.03
0.97
2001
63.58
34.06
1.70
99.34
0.66
2002
62.46
35.09
1.88
99.43
0.57
2003
68.19
26.90
2.57
97.66
2.34
2004
71.00
21.98
3.85
96.83
3.17
2005
66.61
16.07
9.83
92.50
7.50
2006
60.25
18.47
12.30
91.01
8.99
2007
54.90
15.15
15.05
85.10
14.90
2008
53.27
13.87
16.51
83.65
16.35
3 The Basic Conclusion
According to the method of Theil indexes, the text analyses Liaoning Province’s regionally financial
development difference among 1978-2008, and decomposition the total difference. We can draw the
following basic conclusions:
1. The dividing point of Liaoning urban economic gap in the overall financial development difference is
1982 year. Before this year, the financial growth difference increased rapidly, after beginning to show a
downward trend, and showed a similar economic development of the "inverted U Williamson hypothesis
"feature.
2. It can be seen, by decomposition of Liaoning urban economic gap in the overall financial
development difference, that total difference mainly comes from difference in the areas, while the
difference among the areas only forms a small part of the overall difference.
3. As far as the contribution to total difference, the contribution from in the areas is far greater than the
contribution among the areas. From the point of view in the region, economic zones in central city group
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contributes great to total difference, compared with Western Liaoning coastal economic zones, the
Liaodong Peninsula coastal economic zones.
4. The characteristics of regionally financial development difference presented above correlate tightly
with the development difference of regional economy, the deepening of the market-based reform, the
involvement of the local government in the financial development and the coordinated development
policies implemented by central authorities.
References
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