Abstract

This paper discusses theoretically and empirically channels through which regional financial expansion interaction in China. On one hand, local governments have the incentive to expand regional loan to pump up GDP growth rate; on the other hand，the positive externality of financial expansion will give adjacent areas the urge to take“free ride”，resulting in downfall of regional loan in these areas. Two different types of adjacency matrixare choosed to identify interactions, Using Chinese prefecture-level areas data from 2005 to 2011, the results show that areas within the same province exhibit positive correlation in regional financial expansion, while adjacent areas geographically exhibit negative correlation．

Key Words: Financial Expansion, Political Tournaments, Spillover, Spatial Panel Data Model

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