Theoretical And Empirical Analysis On The Effect Of The Financial Industry Development On Rural-urban Income Gap

The financial industry not only has the growth effect, but also has the distributional effect. It's not only the tool of wealth redistribution and social inequality reinforcement, but also the tool to create business opportunities and reduce poverty. How does financial industry play a role in the distribution of income? For the purpose, we need to combine different institutional arrangement and financial development status. Combined with all previous financial crises, the sources lie in the inequality of income and wealth. But every crisis has losers and certainly winners. The bubble and crisis doesn't necessarily mean the disappearance of wealth. In the crisis, whether it is the poor paying the bills for the rich, which has to be assessed integrated with the whole process of financial development. Whether the development of financial industry has the features—specificity of profit privatization, risk socialization and loss globalization; we need to comprehensively study the income distribution effect in different stages of financial development. It should be verified whether there is a complex relationship between financial development and income distribution. But different measurement methods and data select determine the different results, so there is no unified academic conclusion.The gist of the article is to study the relationship between imperfect financial market and income inequality based on national conditions. This article analyses the transmission mechanism of the financial development on rural-urban income gap and studies the actual effect of cutting and merging departments of state-owned banks on rural-urban income gap. It tries to demonstrate that the policy effect of the financial institutional arrangement on rural-urban income gap in order to realize the regulating effect of financial institutional arrangement on income distribution. We find that there is a kuznets effect in the particular stage of China of financial development on rural-urban income gap and give the policy proposal at last. This article is made up of four parts, such as theoretical basis, impact evaluation, empirical analysis and policy recommendations.Domestic and international academic researchers study this item around three areas:First, the financial activities themselves can create value and wealth, or can create what conditions for wealth creation activities. Second, what is the transmission mechanism of financial development on income inequality? Third, financial development will benefit whom, and what is the relationship between distribution function of wealth and the changes in social class. This paper divided the literature into two types of traditional and modern researches. The former includes the inequality between finance and economics and financial repression exacerbated income inequality. The latter includes five aspects, such as financial development and income distribution of the inverted-U theory, credit constraints increased inequality of income distribution, trickle effect of capital accumulation reduce inequality of income distribution, monetary policy reforms affect income distribution, the impact of financial crisis on income distribution.The financial industry has income distribution function, which includes direct and indirect forms of effect in different times and spaces, different organizations. Financial sector not only let some people get rich, to a certain stage of development can also narrow the income gap. In the perfect financial market, the initial wealth does not affect the long run wealth of different agents. But in fact, the financial market is imperfect, the difference of the agents' initial wealth may lead to different threshold of credit, which determines someone can borrow and the others cannot. As the borrowers make a high profit by investing in project, they can gain more income and wealth than the others, the class structure is an inevitable feature of the society. Whether or not the inequality is persistent, should we study the mechanism of trickle-down, which is decided by credit market and wealth distribution. The mechanism of trickle-down may be unavailable when credit discrimination exists, then it can bring about polarization in income distribution. In all, we should strength the redistribution policies and implement the pro-poor financial policies. Meanwhile, Based on the analysis in micro-theory, we should argue how the dual development of China's financial industry effects the income distribution gap in a macro perspective. Combined with the current U.S. sub-prime crisis, we should analyze how the financial crisis effects income distribution. Ultimately, we find the theoretical basis for analyzing actual effect.In our country, the differences between different groups of financial participation mainly exist in urban and rural residents. So, if we want to study the mechanism between finance and income gap of different groups, we need to contact the rural-urban gap. The purpose of the fourth chapter is to reveal the general laws and special appearances of financial dualism on urban and rural income distribution, which is based on the reality of China's path of economic and financial development. Ultimate prove such logic:the dual development of China's financial industry-Credit rationing-Credit countercurrent-capital gains and labor wages-income gap between urban and rural areas.The changes of state finance system arrangements will bring out the changes of financial institutions and instruments, and then to impact the economic development and income distribution. According to the Chinese state-owned banks reform in 1998, we try to verify the reform of state-owned banks is the results of demonstration effect of exogenous policy. This chapter studies the impact of state-owned banking institutions recombination on the urban and rural income gap and the income of peasants, and assess the "patch effect" of agricultural development banks and rural credit cooperative banks, and then verified the logic relationship of "financial system reform—dual development of the financial industry—income gap". Finally, we propose to promote the development of new rural financial institutions, construct the back mechanism of rural funds, and narrow the income gap between urban and rural areas.The sixth chapter empirically analyzes the relationship between financial development and rural-urban income gap based on the 2549 counties' data in China in 2007. We find that there exists Kuznets effect between financial development and urban-rural income inequality. It is that the urban-rural income gap changes in a simulated inverted-U shape curve as the financial development is deepening in different regions. Meanwhile, based on the same degree of financial breadth in the areas, the increase of the proportion of modern sectors in the total economic output may increase the rural-urban income gap. So the extended Kuznets effect exists. However, we are not sure if it exists when financial development is measured in financial depth. The seventh chapter empirically analyzes the Kuznets effect of financial development on rural-urban income gap based on the 30 provinces' data in China from 1997—2008. The financial development is compared by indicators of financial efficiency and financial width, because the indicators of financial scale don't have this effect. It is different from the former studies that the chosen sample interval has certain representativeness. With the improvement of financial efficiency and breadth of financial services audiences, the rural-urban income gap shows the increased in first and then decreased trend. But it doesn't exist only by the development of the financial scale. There is Kuznets effect of economical development on the rural-urban income gap in the model with indicators as financial scale and financial width, but the effect doesn't exist in the model with indicators as financial efficiency.We can get three conclusions from the analysis:(1) We should dialectically look on inequality of financial development and income distribution. (2) Imbalances of the financial system reform is not conducive to narrowing the rural-urban income gap. (3) Imbalances of regional development of financial industry is not conducive to fairing the income distribution. If the goal is to narrow the rural-urban income gap and achieve the common prosperity at last, it is better to take following advices. Firstly, it needs to gradually reduce the financial duality, balance the efficiency and equity of financial development on the groups on the one hand, and balance the regional development of financial industry on the other hand. Secondly, it is necessary to create the equal financing environment, and the key of that is to persist in innovation in property rights equaling, market freedom and financial innovation. Thirdly, it is essential to eliminate rural-urban differences and the dual economy orderly, and to prompt the overall planning of urban and rural construction and reform rural land system. Finally, it is requirement for reforming the income distribution policy in order to construct the virtuous circle mechanism of finance and income distribution.The main innovations in this thesis:1. The basic function of finance is to adjust capital surplus and deficiency. But the single study of financial intermediation efficiency, ignoring the wealth distribution effect of direction of capital flows to different groups, results in overlooking the role of finance in social justice. This article emphasizes that financial transaction is not only a mechanism, but also distribution and redistribution function, thus rethinking financial efficiency will help to advocate the view of unbiased financial perspective.2. The transmission mechanism of finance on income inequality, which not only has financial resource allocation function, but also emphases on the individual behavior choice. That is to say, initial wealth decides financial behavior and investment behavior, which affects income distribution and wealth accumulation, and then the flow of social class. The typical analysis is using credit rationing theory to depict the relationship between the credit discrimination and middle class collapse. And the framework of "finance-distribution" is expanded to: financial reform-credit discrimination-credit countercurrent-capital gains and labor wages-income gap between urban and rural areas, making the theoretical studies of finance and income distribution has more policy implications.3. Based on the Chinese rural financial services situation announced by China Banking Regulatory Commission and the sample of 2549 counties' financial situation, the different level of financial development is sorted to examine the trajectory of rural-urban income gap. At the same time, a nonlinear model based on the panel data was constructed to examine the relationship between financial development and income gap, and then provide comparative study for the prudence of Kuznets effect. The introduction of the exogenous variable of state-owned banking institutions recombination is purposed to confirm the actual pathway and policy effect between the financial institution reform and rural-urban mcome gap.Shortcomings of this thesis:Firstly, there are many factors which affect income distribution gap, so the theoretical and empirical model is limited in the article. Secondly, there are still some limitations in the breadth of indexes and range of the investigated samples. Thirdly, because of complex facts in the process of reform and opening up, the research in this article does not include the special issues, which also decide income gap in fact.