1. Introduction
Sustainable development of finance refers to the rational development and utilization of financial resources in the long term. Unbalanced operation of financial resources such as underdevelopment or over-development in a certain period is not sustainable [
1]. Financial convergence is an inevitable requirement to alleviate the unbalanced allocation of urban and rural financial resources. Urban–rural financial imbalances are formed in the spatial process of urban financial agglomeration and diffusion. At the beginning of the 1990s, market-oriented reforms of the financial system opened channels of cross-regional flow of financial resources in China. During the process, financial resources mainly flowed from rural to urban areas and concentrated in the core cities, beginning the process of urban financial agglomeration. Financial institutions continued to expand into the surrounding areas under the effect of circular cumulative causation, forming different levels of financial centers in the surrounding areas during the leap of each stage. Eventually, a multi-level financial center network came into being, generating spatial spillover effects [
2]. Financial agglomeration zones absorb financial resources from the surroundings and positively spill over to the periphery through trickle-down effects, such as setting up branches, disseminating technology, and managing experience [
3]. They can affect financial supply in peripheral rural areas by improving capital availability. On the other hand, areas with a large amount of financial outflow will have a high level of financial exclusion, which inhibits the financial supply for surrounding rural areas. When financial resources in the core city become saturated and spread to the periphery, the magnitude of these spillovers changes with the intensity of financial diffusion. Therefore, spatial spillovers play an important role in converging urban–rural financial imbalance. How do these spillover effects form and manifest during urban financial agglomeration and diffusion? Are they heterogeneous in different regions? What are urban–rural financial inequality’s convergent mechanism and bottleneck under spatial spillovers? The study of the above questions is vital for the coordinated development of urban and rural finance from a perspective of spatial synergy.
The existing studies mainly focus on converging urban and rural finance from a non-spatial perspective. Most research has paid attention to the narrowing of urban and rural financial differences. According to the neoclassical development theory, marginal capital returns drive the flow of financial resources and converge urban–rural finance in various regions. However, information asymmetry in rural credit markets leads to adverse selection and moral hazards, thus causing market failure [
4,
5]. Governments also play exogenous roles through urban preferences or intervention in bank credit [
6,
7]. Therefore, large amounts of financial resources flow from rural to urban areas, with the fiscal and financial systems playing an important role in withdrawing rural funds [
8,
9]. The reverse outflow of rural financial resources makes the gaps in urban–rural finance persist, which are reflected in financial assets, financial loans, and financial development, etc. [
10,
11].
Moreover, the imbalance between urban and rural financial development is also reflected at the regional level. Inter-provincial inequality is evident and sustainable in the three regions and eight economic zones [
12]. Urban–rural financial imbalances among the eastern, central, and western areas are slight, while within the regions they are considerable, especially in eastern provinces [
13]. However, Jiang and Xie believe that expanding urban–rural financial imbalance is only temporary. When urban financial development reaches a certain threshold, it will promote the development of rural finance and narrow the gap between urban and rural finance. This effect is pronounced in the eastern region but has yet to appear in the central and western areas [
11]. Research on the convergence of urban–rural financial imbalance in different provinces is rare. Li argues that urban–rural financial imbalances in China have shown a conditional convergence trend and have club convergence characteristics [
14].
The above discussions are based on the neoclassical theory hypothesis, which considers provincial urban–rural financial differences as independent entities without spatial spillovers. However, regional interactions should be addressed. The research perspective of financial geography emphasizes the information-based geographical attributes of financial activities, describes spatial factors’ influences on financial activities, and explains the formation of financial agglomeration and financial exclusion as well as their spatial spillover effects [
15,
16,
17]. Spatial interactions are conducive to helping undeveloped regions catch up with developed areas and realize convergence [
18]. Therefore, spatial dependence and heterogeneity have become practical problems in cross-sectional and spatial-temporal analyses [
19], as various spillover effects due to factor mobility, transfer payments, and technological diffusion become operational [
20]. Ignoring spillover effects will lead to bias in the convergence model setting [
21]. Models with spatial spillover have been widely used in the convergence study of China’s economic growth and financial development [
22,
23,
24,
25].
In fact, within the linked network of regional economies, urban–rural development also exhibits spatial heterogeneity and dependence. In spatial agglomeration, urban systems gradually self-organize into a highly regular hierarchy and form a connected network structure [
26,
27,
28]. Symbiotic relationships can emerge between urban hierarchies based on regional market potential, including the rural fringe [
26,
29]. The positive externalities of urban development for rural areas show spatial agglomeration characteristics, with counties near large cities such as Beijing, Shanghai, Guangzhou, and Shenzhen having higher agricultural labor productivity from 2000 to 2010 [
30]. Urban–rural integration has a positive spatial correlation, and the agglomeration effects of cities play a dominant role [
31]. The agglomeration and diffusion of economic and financial resources enhance the spatial interaction of urban–rural financial differences, making their evolution and convergence exhibit new characteristics. Regarding spatial logic, urban–rural integrated development involves reconstructing urban–rural spatial relations [
32]. Therefore, the spatial effect is a prerequisite that cannot be ignored when studying the convergence of urban–rural financial differences. However, no spatial effects of urban–rural financial imbalance are considered in the existing literature, motivating us to pursue this topic.
The aim of this paper is to explore the convergence of urban–rural financial imbalances under spatial spillover effects formed during urban financial agglomeration and diffusion. Its contributions are as follows. Firstly, we construct an analytic framework to elaborate on the influence of spatial spillovers on convergence through the financial geographical perspective of spatial process, spatial action, and spatial convergence. Secondly, we demonstrate the existence of spillovers among provincial urban–rural financial imbalances, including spillovers based on financial radiation and financial exclusion. Thirdly, we examine the convergent mechanism of urban–rural financial imbalance under spatial spillover effects. Finally, we propose policies for convergence and sustainable development of urban and rural finance from a perspective of spatial coordination. We found that urban–rural financial differences show significant spillover effects and heterogeneous characteristics. Spillovers based on financial radiation and exclusion were obvious during urban financial agglomeration. The former was conducive, while the latter was detrimental to convergence. Both decreased with geographical distance and weakened during the financial diffusion phase. At this time, spatial spillovers in the information and technology dimensions less constrained by geographical distance become obvious and played a positive role in converging urban–rural financial imbalances in the middle and western areas. Therefore, it is necessary to stimulate new spillover channels to promote the further convergence of urban–rural financial disequilibrium.
2. Theories and Hypotheses
Figure 1 describes spatial spillovers and the convergence of urban–rural financial imbalances. Our analytical logic was based on the perspective of financial geography, which contains spatial differences, spatial processes, and spatial interactions [
33]. As shown in
Figure 1, we extended the logical chain to spatial convergence. The left and right dashed square boxes indicate the financial agglomeration and diffusion processes, respectively. The upper and lower sides are the financially abundant areas and financially scarce areas, respectively. The spatial processes are the agglomeration and diffusion of financial resources, during which financial abundant areas and scarce areas are formed. The spatial interactions are spillovers produced in the process of financial agglomeration and diffusion. Spatial convergence is the evolution trend of urban–rural financial imbalance, which is affected by spatial spillovers, and shows different characteristics in financially abundant and scarce areas. We will elaborate on the mechanism in detail.
2.1. Financial Agglomeration, Spatial Spillovers and Convergence of Urban–Rural Financial Imbalances
Financial centers benefit from financial agglomeration, and their urban areas take the lead in radiating rural finance through the following channels: firstly, by expanding urban financial services to rural areas through financial division. Core cities continuously expand their financial scale in the cycle of cumulative causality. The externality drives the deepening of financial specialization, significantly reducing financial transaction costs and penetrating financial services to rural areas through financial expansion. Secondly, spillovers of financial talents to rural areas are promoted through a shared labor market. Financial agglomeration is conducive to fostering multi-level professional financial talents and forming a shared financial labor market. The accumulation of financial knowledge and skills generated by financial aggregation can radiate to rural areas through labor mobility, improving the human capital of rural finance. Thirdly, the asymmetry of the rural credit market is reduced through information spillovers. Competition and cooperation of core and surrounding cities form a complex horizontal and vertical connection, which enables them to form an interdependent network [
34]. Rural financial institutions close to financial centers can enjoy the externalities of the above information network, significantly enhancing their access to financial services. Fourthly, rural financial innovation is promoted through spillovers of technology. Transaction costs associated with information asymmetry in rural credit markets, including information collection costs, loan monitoring costs, and disposal costs, are high, and a combination of credit techniques is needed to reduce information asymmetry [
5]. As a result, it is difficult for traditional financial services to meet their financial demands, and financial innovation is required. Technical spillovers from financial centers promote adjacent rural financial institutions to provide innovative financial services suitable for rural production and operation, which better meets the diversified financial needs of rural operators and improves rural financial supply.
On the other hand, financial agglomeration strengthens the spatial spillover of urban–rural financial imbalances and contributes to their convergence. The forward and backward linkages of financial activities form close spatial interactions between cities and generate spatial spillovers through spatial demonstration, training, competition, and collaboration effects [
35]. Core cities play demonstrative roles in financial products, services, and technology. This also results in spillovers of financial knowledge and management experience through training and the exchange of financial talents. Fierce market competition improves the quality of financial innovation and service in core areas. Financial institutions in various regions strengthen spatial correlation in labor specialization and spatial cooperation. Therefore, financial centers drive financial developments of peripheral areas through spatial spillover. The financial development of peripheral cities further radiates into surrounding rural areas by improving financial services, financial talents, financial information, and financial knowledge. Thus, urban–rural financial imbalance in financial abundant areas declines interactively. Spillovers based on financial radiation make peripheral areas with initially high urban–rural financial imbalance share the financial achievements of financial centers and reduce urban–rural inequality faster. As a result, financial radiation from urban to rural areas and spillover effects contribute to the convergence of urban–rural financial imbalances in financial abundant areas, as shown by the top left of
Figure 1.
For financially scarce zones, an outflow of financial resources prevents the accessibility, availability, and usage of financial resources, thus inducing financial exclusion [
36]. In addition, financial exclusion has a significant spatial dependence [
37]. A province with high financial exclusion results in both it and adjacent provinces having a low financial availability, which makes urban finance insufficient to drive rural finance. Compared with the interacted contraction of urban–rural financial imbalances in financially abundant areas, urban–rural financial inequality in financially scarce areas will be locked at a high level. Thus, the convergence of urban–rural financial imbalances in financially scarce areas is prevented by insufficient financial radiation and exclusion spillovers, as shown by the bottom left of
Figure 1. We propose two hypotheses according to the convergence characteristic during financial agglomeration.
Hypothesis 1. Urban–rural financial imbalances have radiation spillovers and exclusion spillovers which decrease with geographical distance, with spatial dependence and spatial heterogeneity based upon them.
Hypothesis 2. Radiation spillovers in financially abundant areas promote the convergence of urban–rural financial imbalance, while exclusion spillovers in financially scarce areas prevent it.
2.2. Financial Diffusion, Spatial Spillovers, and Convergence of Urban–Rural Financial Imbalances
When the development of urban finance in the financial abundance zone has reached a certain level, financial diffusion becomes the primary form of financial connection with the surrounding areas and starts the period of financial diffusion. At this time, failure to break through some of the relevant constraints will prevent the convergence of urban–rural financial disequilibrium in financial abundance.
Firstly, financial radiation from urban to rural areas needs to be enhanced. During financial agglomeration, rural finance has just developed from a primary stage. As a result, financial radiation from urban to rural areas is mainly based on expanding financial institutions and financial services, which promotes rural financial development through “scale expansion”. By contrast, new types of rural financial institutions gradually emerge at the stage of financial diffusion, and innovation in rural financial services is increasing. Accordingly, the effects of financial radiation need to shift from “scale expansion” to “quality-driven”, that is to say, promoting innovation and financial efficiency in rural financial services through the diffusion of financial technology. Otherwise, it will be challenging to meet the financial needs of modern agricultural production and operation, thus inhibiting radiation effects from urban to rural areas.
Secondly, spatial spillover needs to break through the spatial distance constraint of geographical proximity and spill over to regions with similar levels of information and technology. The “spread” effects are weaker compared with the “backwash” effects under market forces [
38]. Furthermore, financial diffusion can also be limited by local protection and the infrastructure level of the area receiving the financial resource backflow. Insufficient financial diffusion can weaken interactions between cities, inducing a divergent trend and a decline in the convergence of urban and rural financial inequality. Spatial spillover dividends based on geographical distance have gradually been released in the financial agglomeration stage. New spatial penetration channels with less geographical constraints must be explored to maintain further convergence. In summary, the lack of “quality-driven” financial radiation from urban to rural areas and the decreased spillover effects prevent the convergence of urban–rural financial imbalance among geographically adjacent provinces, as shown in the upper right part of
Figure 1.
On the other hand, financially scarce areas absorb financial resources flowing back from financially abundant regions. The quantity-oriented financial radiation from urban to rural areas increases with the enrichment of financial supply. Agglomeration of provinces with high urban–rural financial inequalities can be alleviated due to weakened financial exclusion spillovers. The breakthrough of the locking state of high urban–rural financial imbalance promotes spatial convergence in financially scarce areas, as shown by the bottom right of
Figure 1. We propose hypothesis 3 based on the spatial spillover effects and convergence during financial diffusion.
Hypothesis 3. Weakened financial radiation spillovers prevent the convergence of urban–rural financial imbalance in financially abundant areas. In contrast, improved financial radiation and weakened exclusion spillover promote convergence in financially scarce regions.
5. Discussion
The existing studies have explored the convergence of urban–rural financial disequilibrium without spillovers. In contrast, our study examined the spatial spillover effects of provincial urban–rural financial imbalances, their heterogeneous characteristics, and their important role in spatial convergence. The possible contribution of this study is that we constructed a framework to analyze the spatial convergence of urban–rural financial imbalances under spatial spillovers. It is based on the analytical paradigm of spatial process, spatial action, and spatial convergence from the perspective of financial geography. We used this framework to explain heterogeneous spatial spillovers formed during the spatial process of urban financial agglomeration and diffusion, and their impact on the convergent mechanism. Further, through the spatial econometric models, we re-examined the spatial convergence of urban–rural financial imbalances in China from 1991 to 2021.
Our results verified the proposed hypothesis that spatial spillovers exist in provincial urban–rural financial imbalances and influence their spatial convergence. First, urban–rural financial imbalances showed significant spillover effects and heterogeneous characteristics. Spillovers based on financial radiation and exclusion were apparent during financial agglomeration, and decreased with geographical distance. Radiation spillovers in financially abundant areas promoted the concentration of provinces with low urban–rural financial imbalance. On the other hand, exclusion spillovers in financially scarce regions contributed to the concentration of provinces with high urban–rural financial imbalances. Second, spatial spillovers had an essential impact on the convergence of provincial urban–rural financial imbalance. During the financial agglomeration period, radiation spillovers from financial centers in the eastern region drove peripheral provinces to reduce their urban–rural financial inequality, contributing to the convergence in financially abundant areas. On the other hand, some provinces in the northwest and southwest regions were locked into the accumulation of high urban–rural financial imbalances because of financial exclusion spillovers, hindering the convergence in financially scarce areas. During the financial diffusion period, the convergence of urban–rural financial inequality in the eastern region weakened because of the decreased intensity of radiation spillovers. Meanwhile, convergence in the western area improved with the decline of exclusion spillovers.
This study was subject to some limitations. Firstly, it was mainly limited to the provincial level due to data availability. Municipal data can be considered to compare urban–rural financial imbalances of different urban agglomerations and the impact of spillovers on their convergence. Secondly, the spatial correlation network should be further explored. With the increased complexity of urban spatial connections, the linkage structure of urban–rural financial imbalances gradually developed into a complex network. Subsequent research can use social network analysis to study their network characteristics and more accurately investigate the spatial role of urban–rural financial imbalance in different regions. Thirdly, this study focused on urban–rural differences in traditional finance, and differences in digital finance require more attention in the future, especially the impact of technology and information spillovers on urban–rural digital financial differences. They are not constrained by geographic distances and can better reflect the spatial spillovers of digital finance.
According to our research, it is necessary to establish a concept of spatial integration to promote the convergence of urban–rural financial imbalances based on promoting spatial synergy. Policy recommendations are as follows. Firstly, improve urban financial radiation by meeting the financial demands of rural areas in different regions. Ineffective financial radiation will lead to excessive concentration of financial resources in cities and inhibit the convergence of urban–rural financial disequilibrium. Therefore, urban financial radiation should be optimized regarding radiation sources and radiation channels according to changes in rural finance. Secondly, it is necessary to reasonably use spatial spillover effects to promote the convergence of urban–rural financial imbalance. Inclusive finance should be promoted according to different spatial spillover effects among regions, strengthening financial radiation spillover and suppressing financial exclusion spillover. Thirdly, new spatial spillover channels should be activated according to the changes in the spatial interaction mode of urban–rural financial disequilibrium. Interaction channels such as via the transfer of information and the diffusion of knowledge, should be explored when spillover based on geographical distance is weak. The eastern region should expand networked and information-based spillover channels, improving the spatial dissemination of financial technology and encouraging the financial interaction in the information and technology dimensions. The central and western regions should continue enhancing urban–rural information construction and the digital upgrade of rural financial institutions to further improve the convergence of urban–rural financial disequilibrium for information and technology adjacent regions.