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| Banking Financial Service Innovation and Cross-Regional Capital Flows |
| SHENG Tianxiang, FAN Conglai, TENG Jiahui
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| College of Finance, Nanjing Agricultural University; Yangtze River Delta Economics and Social Development Research Center,Nanjing University |
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Abstract Regional coordinated development is a strategic priority in China. Cross-regional capital flows and allocation directly affect regional economic disparities and are a key factor in promoting regional coordinated development. Compared with developed regions, the degree of capital agglomeration in China’s underdeveloped regions remains relatively low. Achieving the allocation of resources across geographical regions is one of the fundamental functions of the financial system. With the deepening application of technologies such as artificial intelligence, big data, blockchain, and cloud computing, China’s financial system has undergone rapid innovation and has become an important force in enhancing the role of the market mechanism. China’s financial system relies heavily on the banking sector, which makes banking financial service innovation particularly noteworthy. Does banking financial service innovation affect cross-regional capital flows? What is the mechanism? Can it guide capital flows toward underdeveloped regions? Addressing these questions clarifies the theoretical channels of how finance promotes regional coordinated development and offers important insights for boosting capital agglomeration in underdeveloped regions and optimizing the policy system.
This paper constructs a two-region theoretical model of capital flows to explore the impact of banking financial service innovation on cross-regional capital flows. On this basis, it constructs an index of banking financial service innovation using the number of news reports, measures capital flows employing the full set of business registration data of Chinese enterprises, and constructs city-pair-level data from 2011 to 2023 for empirical testing. The results show that, first, banking financial service innovation promotes cross-regional capital flows, and this conclusion remains valid after a series of robustness checks. Second, banking financial service innovation promotes capital flows by improving the spatial accessibility of financial services and reducing the frictional cost of enterprises’ cross-regional investment. The promotional effect is more significant when the capital-outflow region has strong innovation capacity and advanced digital adoption capability, and when the capital-inflow region features a high degree of marketization and a low level of financial risks. Third, banking financial service innovation encourages capital to flow to regions with high production efficiency and high returns on capital, and steers capital from developed regions to underdeveloped regions, thereby helping to narrow the interregional capital allocation gap. Fourth, within provinces and urban agglomerations, the role of banking financial service innovation in driving cross-regional capital flows is more prominent, while for the three major urban clusters, it exhibits a stronger cross-megaregion capital flow effect.
This paper proposes the following policy recommendations. First, deepen banking financial service innovation and enhance the role of the market mechanism in capital allocation based on local conditions. Second, consolidate the foundations for the role of banking financial service innovation, and facilitate the two mechanisms of improving spatial accessibility and reducing frictional cost. Third, strengthen efficiency orientation and coordinated linkages, and empower regional coordinated development through banking financial service innovation.
The marginal contributions of this paper are as follows. First, it establishes an analytical framework for the impact of banking financial service innovation on cross-regional capital flows, enriches the literature on capital flows from a financial perspective, and lays a theoretical foundation for promoting regional capital flows and optimizing allocation. Second, proceeding from the service functions of the banking sector, it categorizes such innovation into traditional financial service innovation and non-financial value-added service innovation, systematically analyzes the mechanism through which banking financial service innovation affects capital flows, and provides empirical evidence for promoting cross-regional capital flows through market-oriented approaches. Third, it examines the impact of banking financial service innovation on capital flow efficiency, spatial boundaries, and flow directions between regions with different levels of development, offering new evidence for resolving theoretical debates on capital flows and advancing regional coordinated development.
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Received: 22 January 2026
Published: 19 October 2026
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