Spatial Mismatch of Regional Capital Flows in China!--A New Measure

Abstract: This paper employs unique data collected manually to count the capital net inflows of 31 provinces in China from 2015 to 2020 and measures the theoretical gap of capital demand for each province in the sample interval using the Three-gap Model. Based on this, we describe the relationship between regional capital flows and the theoretical gap of regional capital demand, and subsequently, use a spatial econometric model to corroborate the existence of the spatial mismatch of regional capital flows in China. Then, we analyze the impact of spatial mismatch of regional capital flows on corporate financing constraints using data of A-share listed companies in Shanghai and Shenzhen Stock Exchange, and find that mismatch significantly increases the level of firm's financing constraints. The magnitude of its effect is influenced by the size, location and corporate ownership. This paper has important implications for regional capital allocation and alleviating corporate financing constraints