Capital flows under integration: Evidence from China's metropolitan area development planning

This paper uses the introduction of metropolitan area development planning (MADP) in China to examine the effects of regional integration on capital flow in the context of intranational investment. Using the data of inter-regional capital flows that aggregated by data of listed companies in China from 1999 to 2019, we find that MADP can improve inter-regional investment substantially at the city-pair level. The mechanism analysis indicates that MADP fosters capital flow by diminishing institutional distance, erasing market segmentation, and enhancing transportation infrastructure connectivity. Furthermore, the influence of MADP on capital flows is more significant in cities endowed with robust big data application foundations, lower levels of total factor productivity (TFP), and in city pairs with no administrative borders.