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Urban agglomeration, comprehensive financial development, and market segmentation

Author

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  • Yuan, Yefang
  • Huang, Dier
  • Yan, Jiangchen
  • Zhou, Rui

Abstract

This paper examines the impact of China's national urban agglomeration policies on regional market integration using a city-level panel from 2004 to 2023. Leveraging staggered policy rollout and a difference-in-differences strategy, we find that these spatial coordination policies significantly reduce intercity market segmentation, lowering the market segmentation index by about 0.022 points. Mechanism analysis shows that urban agglomeration promotes both traditional financial development and digital financial inclusion, which in turn reduce segmentation by lowering transaction costs and improving capital allocation; together, these financial channels account for roughly 14% of the total policy effect. The policy's impact is stronger in cities with weaker financial infrastructure, higher initial segmentation, and lower fiscal transparency, highlighting the importance of institutional conditions. These findings offer new insights into how top-down spatial reforms can promote more integrated and efficient regional markets.

Suggested Citation

  • Yuan, Yefang & Huang, Dier & Yan, Jiangchen & Zhou, Rui, 2026. "Urban agglomeration, comprehensive financial development, and market segmentation," Pacific-Basin Finance Journal, Elsevier, vol. 99(C).
    • Handle: RePEc:eee:pacfin:v:99:y:2026:i:c:s0927538x2600185x
    DOI: 10.1016/j.pacfin.2026.103239
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