Impact of regional financial policy on economic development
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Abstract. The regional economy is an important feature of China’s financial development. Large number of examples and documentation are to prove the booming regional financial policies on the national economy which plays a facilitating role. Combined with previous studies and conclusions, we discuss the necessity of regional financial policy, energy efficiency, regional financial policy and scope, as well as issues and problems faced by the cause.
Keywords: Regional financial policy, economic development, and promotion
0. Introduction
There were a lot of experiments on the relationship between the area of fiscal policy, monetary policy and regional economic development between China conducted a co-integration analysis, and on this basis, it is for each variable causality joint inspection. The results showed that the area of fiscal policy, monetary policy is a long-term positive regional equilibrium relationship which exists with China ‘s national economic development, and through causality test it showed that both expenditure and financial credit unidirectional Granger cause China’s national economic output, thus confirming the reform and opening of China’s booming economy to a certain extent, it is due to effective fiscal and monetary policies implemented by the government, and the development of the national economy needs good fiscal policy and monetary policy with action. But empirical results also show the effect of financial policies on the development of private economy which is greater than fiscal policy, it implies that the region in the implementation of fiscal and monetary policies promotes economic development, and focusing on the use of regional financial policy is very necessary.
1. The necessity of regional financial policy
In theory, there are two ways to reduce regional financial difference: one is to guide the financial resources to be reconfigured through the "invisible hand" of the market. This view upholds liberal philosophy and market universal concept that regional financial difference is only in the short-term market-clearing process imbalance, automatic balancing mechanism is sufficient to correct any imbalance in the market. The second is to rely on the "visible hand" of government, and the implementation of regional financial policy. This view adheres to the limited market intervention philosophy and ideas that the market incompleteness profit-driven decisions and capital market clearing mechanism can not reduce regional differences. Government intervention is effective, necessary and feasible. So, what should choose an alternative? Should theoretically be the first clearance?
1.1 Liberalism and interventionism - macro-level analysis
Liberal theory of neoclassical economics is as a pillar, while the neo-classical theory is based on free competition, it is full employment of factors of production and the full flow of capital and labor on the basis of assumptions. If the assumption is true liberal believes, when the external force to break the regional balance, it makes a difference reward factors of production which would lead to inter-regional flows of capital and labor, until reach a new equilibrium. Liberal view is that the above process is completely under the expanded role of the market. However, the automatic balancing mechanism does not exist. The assumption is too idealistic, ignoring the load factor mobility vehicle - business decisions and market externalities. In reality, many factors impede the flow of factors, such as local protectionism, restrictions on labor mobility. Leaving aside the policy factors, alone in business decisions, the impact of the location decision is not just entrepreneurs layout costs, there may be greater or less than the cost of the public cost of the entrepreneur, the entrepreneur alone is not sufficient to lead to changes in the cost of capital flows. And there is a trial and error process of the market, such as the presence of externalities, "Entrepreneurs bad location decisions are often not corrected but maintained." Therefore, the regional self-balancing mechanism does not exist, as the economist pointed out, attractive regional centers are mainly from historical contingencies. Once the originator something is here, we will not be transferred to the region may be more advantageous. Perhaps it is these infrequent events undermine the self-balancing mechanism and unmistakably mean that we should not focus on the perfect market, but should reduce regional differences through regional policy.
1.2 Micro- bounded rationality and regional stakeholders’ disequilibrium - the micro-level analysis
Due to differences in the final analysis by the micro- macro subject behavior causes a conflict of interest as the main micro individuals, businesses, governments and other collections, so that the market can not establish an effective balance mechanism, leading to the macro-level "market failure." Therefore, the micro-level analysis is to better explain the necessity of regional financial policy.
In short, the theoretical analysis shows that the implementation of regional financial policy is indeed necessary. In fact, due to the high risk nature of its sound financial decision to run the government, it can not do without strict control, especially our country is still at the old economic order alternating process, there are regional differences which may distort unified mechanism of monetary policy, leading to unified monetary policy which is different and even opposite effect of policies in different regions. About 20 years of accumulated experience in the reform of China, in the process of narrowing regional differences, it must be combined with national conditions and flexible implementation of regional policy, any blind worship of the market and of the region's persistent rejection of financial policies is wrong. Of course, the regional financial policy can not replace market mechanisms, but on the "market failure" to correct or fill a vacancy. Regional financial policy must be based on the market on the basis of the order: First, boot is from the main body of the macro and micro interests and behavior, making closer to the goal of enhancing overall economic efficiency as much as possible; secondly, we make up for market imperfections, the market is not in place in the region through preferential policies, we foster regional financial markets; once again, according to changes in the pattern of regional development finance, we adjust the scope and orientation of policies to ensure balanced development of regional economy and finance to achieve Pareto optimality.
2. Current role of regional policy in regional economic conditions and performance
Under current conditions, macroeconomic policy objectives include internal balance and external balance in two parts, so the government can not remain as mere use a closed economy policy on aggregate and demand be regulated. To avoid conflict between internal and external balance, open economy macroeconomic conditions of the government must have new ideas.
Internal and external policy mix to achieve a balanced program, with Mondale made ??with fiscal policy and monetary policy, and Swann proposed spending policies and exchange rate policy of the most influential. Because fiscal policy has a comparative advantage in coordinating domestic balance, while monetary policy has a comparative advantage in the coordination of external balance, therefore the government should regulate the internal equilibrium problems, and monetary policy to control the external balance. Swann uses spending transformational change in policy and expenditure -based policy to discuss policy coordination with the government and external balance. Swann believes the government's spending policies could significantly affect the change in the level of domestic spending; changes in the real exchange rate of the national currency can significantly affect the balance of payments. Therefore, changes in government spending should be used to address domestic policy type equilibrium problem, and the task of the external balance is to expenditures transformational exchange rate policy.
Compared with the case of a closed economy, in the very large changes in the fiscal and monetary policy in an open economy mechanism, policy effects occurred. So far, the analysis of the main instruments of fiscal policy and monetary policy effectiveness remains open. Economy is a Mundell Fleming model. The theory is that, under the floating exchange rate regime, the use of monetary policy is more effective to increase the national income, while in the fixed exchange rate regime, fiscal policy is a powerful tool to achieve this goal. Country from the actual situation of developing countries, in addition to the short-term part of the national pilot floating exchange rate, many countries still adopt a fixed exchange rate system, there is the implementation of a floating exchange rate controls, in general, the pursuit of full employment is best emphasis on the use of fiscal policy.
3. Question under the current economic situation faced by regional financial policy
In the case of the international community in recent years, global economic imbalances and the adjustment have not yet reached consensus, the decision of China's macroeconomic policies will be more complicated. Macroeconomic policy decisions should not only consider the internal balance target, but also to consider the external balance target, but these two goals often conflict. On the other hand, global economic development and financial integration allow for its domestic policy, which often causes a chain reaction in other countries, thus weakening the effect of play policy. We believe that the conflict between internal and external balance target will be the biggest challenge facing China's fiscal and financial policies. By Mead conflict theory, increasingly integrated into the global economy, China, macroeconomic policies will also face "Mead conflict" this dilemma. With the deepening of reform and opening up and China's accession commitments WTO tissue, the next project will be gradually realized capital freely convertible, when the central bank maintain a stable exchange rate of the foreign exchange market, it is difficult to implement control policies based on the requirements of the domestic market. Research shows that since 1994, China's monetary policy and exchange rate policy appears three times the apparent conflict: from 1994 to 1996, foreign exchange reserves and a rapid increase in the conflict between higher inflation; 1998 foreign exchange reserves declined and prices continued to increase rapidly conflict from 1998 to 1999, foreign currency exchange rate stability and the spread are between the upside down; For example, when rapid growth in foreign exchange reserves, the money supply of the corresponding increases, but because of the domestic economy and the emergence of inflation, the central bank can not continue to expand the money supply, fueling inflationary pressures, they must implement tight monetary policy, resulting in need to implement the internal and external market two opposite monetary policy, the central bank dilemma.
4. The current mechanism of monetary policy and external equilibrium regional conflicts
4.1 External economic shocks
Including physical shocks and financial shocks are into two categories: physical impact result in international commodity trade, trade balance and terms of trade changes due to certain factors that cause abnormal changes in the commodity market, thus it forms the macroeconomic impact. Transduction pathways are: First, there is a direct link with the international market sectors of the economy due to external impact and changes; Secondly, there is no direct link with the international market sectors of the domestic economy, because the trade sector impact and change; Finally, foreign economic sector and the domestic sector of the economy to reach a new equilibrium has the new basis. Toward a new equilibrium in the adjustment process, contradictions and conflicts may occur between internal and external balance. The main types of physical impact include: international trade changes brought trade shocks; foreign income level fluctuations are in income shocks; international commodity market prices brought about dramatic changes in supply shocks; financial impact of changes in the financial markets led to asset price and changes in capital flows, and thus it adversely affects the international balance of payments and domestic economy of the countries concerned. International capital flows and economic fluctuations often pass from one country to another, it passes quickly, affecting a wider range. A huge impact on the internal and external financial shocks balances main interest rate shock, the impact of speculative capital flows and the expected impact of the financial crisis, such as self-realization.
4.2 Uncoordinated international economic policy
In the context of economic globalization, the interdependence of national economies is to enhance economic policy of a country and other countries will have a "spillover effect" and a chain of "feedback effect." Countries' economic policies have their own characteristics, different economic policy goals are for the existence of different effects. Some policy instruments, mainly in the domestic sector of the economy play a role in some of the major role in the external sector of the economy; many of these tools for both departments are simultaneously in the same direction or the opposite effect. Therefore, to maintain coordination between policy coordination is very important. If there is inconsistency between the policies, it will produce conflict and external balance objectives. In addition,” Mead conflict”, “Feldstein theorem” also has a good description of policy coordination failure.” Feldstein theorem” stresses that only fiscal policy and exchange rate policy coordination are in order to achieve the desired policy objectives.
4.3 Economies to adjust the power of internal self
Include: technological progress. Technological advances can bring to improve and enhance their productive capacity and competitiveness of labor productivity. The impact of technological progress on the domestic economy is to improve economic growth and increase the level of output, but it will generate inflationary pressures. The impact of technological advances on foreign economic sectors is through enhanced international competitiveness and export their products urged to produce their balance of payments surplus. So it will form a type of external equilibrium conflict Mead; transition process of structural changes. Market-oriented reform of the release of suppressed inflation pressures in the past, the structural reform of inflation arising is from this exchange because of a higher rate of economic growth. At the same time, foreign investment is due to optimistic about the prospects of domestic market opportunities and economic growth and large inflows, thus forming inflation, it balances payments surplus and national coexistence of exchange rate appreciation, causing conflicts and external balance; spontaneous changes in consumption or investment. If the economy is in the presence of internal balance and the current account deficit of the state, at this time if spontaneous consumption reduces, the investment will result in reducing aggregate demand, the economy may be headed for a recession, which requires the Government to adopt expansionary fiscal and monetary policies to stimulate economic recovery, and expansionary fiscal and monetary policy will cause further deterioration of the current account, the formation of external equilibrium conflicts; consumer preferences change. If the economy is in internal balance and the current account surplus in the state, it indicates that consumers prefer products from abroad turned to domestic products, thus increasing demand for domestic products, thereby causing the expansion of aggregate demand and putting pressure on inflation, in which case it asks the Government to adopt contractionary, fiscal and monetary policy adjustments. The result will only further increase the current account surplus, which is clearly not the external balance target to achieve the desired purpose; in turn it generates economic contradictions and external balance.
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