Does the Construction of High-Speed Rail Change the Development of Regional Finance?

Abstract

This study aims to examine the relationship between the high-speed rail (HSR) and regional financial development, employing 270 prefecture-level cities in China. With the increase in traffic lines, the network effect of the HSR gradually amplifies, and its impact is felt on both the “quality” and “quantity” of financial development. Different from using a single indicator, this paper comprehensively measures urban financial development from the perspectives of financial broadening and deepening based on financial indicators from six dimensions. By constructing a two-way fixed-effect regression model of urban panels, this paper presents that the HSR affects financial broadening. Specifically, the HSR reduces the excessive expansion of financial scale, the degree of financial agglomeration, and the financial risks in cities. Meanwhile, the HSR also promotes financial deepening, meaning the enhancement of urban financial efficiency and financial depth, as well as changes in financial structure. An indirect mechanism analysis demonstrates that population migration caused by the HSR motivates the transformation of financial elements among cities, which has varying degrees of impact on urban financial development. Overall, local governments should seize the opportunity of densifying the HSR network to promote the sustainable development of urban finance, adjust the structure, improve efficiency, reduce risks and gradually support urban finance to become better and stronger.