Network of trust, capital flow and regional development disparity

YANG Yang, XIE Jiasong, LIN Jianhao, KE Weidi

Systems Engineering - Theory & Practice ›› 2020, Vol. 40 ›› Issue (9) : 2222-2235.

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Systems Engineering - Theory & Practice ›› 2020, Vol. 40 ›› Issue (9) : 2222-2235. DOI: 10.12011/1000-6788-2020-0227-14

Network of trust, capital flow and regional development disparity

  • YANG Yang1, XIE Jiasong1, LIN Jianhao1, KE Weidi2
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Abstract

Trust is recognized as an informal institution and important social capital that has an important role, in areas with under-developed formal institutions and weak legal framework, to compensate the weakness in formal institutions and to lower transaction costs. Using data from High-Value Payment System of People's Bank of China and the China Entrepreneur Survey System, this paper investigates the influence of bilateral trust on capital flow across provinces. The results show that, trust by origin provinces significantly promotes capital to flow into destination provinces. By further constructing the network of trust based on geographical, cultural and trust associations, we discover that the spillover effect via the network of trust is greater on capital-flow promotion than the direct effect of bilateral trust. Moreover, a bigger between-region gap in bilateral trust induces greater asymmetry in inter-region capital flow, which further expands regional development disparity. This paper provides an explanation to regional development disparity in China from a new perspective, and accordingly proposes relevant policy recommendations.

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network of trust / capital flow / regional development disparity

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YANG Yang , XIE Jiasong , LIN Jianhao , KE Weidi. Network of trust, capital flow and regional development disparity. Systems Engineering - Theory & Practice, 2020, 40(9): 2222-2235 https://doi.org/10.12011/1000-6788-2020-0227-14

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Funding

National Natural Science Foundation of China (71703175, 71773147); Major Program of the National Social Science Foundation of China (18ZDA092); Guangdong Science and Technology Development Funds (2017A030310392)
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