Provincial border effects on capital flows in China: A study based on enterprise cross-regional investment data

The extant literature primarily focuses on the border effects of commodity markets, while research on the border effects of capital markets remains limited. This article employs enterprise cross-regional investment data to quantify provincial border effects in terms of capital flow in China. The findings demonstrate the presence of substantial provincial border effects in China's cross-regional investment, with these effects exhibiting an increasing trend over time. Analysis of influencing factors reveals that fiscal decentralization and political tournaments have spurred the emergence of local protectionism and administrative regional economies, serving as significant institutional causes for provincial border effects in China. The development of transportation and the construction of urban agglomerations are conducive to reducing border effects, yet disparities in regional development levels and industrial structures continuously reinforce border effects. This phenomenon elucidates why the border effects are even stronger in the economically developed but internally uneven eastern regions. Additionally, fixed-effects decomposition results indicate that strong border effects are concentrated between adjacent provinces; this is characteristic of a “beggar-thy-neighbour” approach. Evidence from China suggests that ways to break administrative barriers hindering the free flow of capital elements can be explored through policy measures in areas such as transportation connectivity and institutional innovation.