Study On The Interactive Relationship Between The Growth Of Farmers’ Income And Rural Finance Development

With the deepening of China’s reform on the rural economic system, especiallythe agricultural industry is facing the strategic restructuring of development mode, theindustrialization of agriculture and rural urbanization trends are becoming evident. Inthis process, the rapid growth and structural change of famer’s income diversified thesocial structure in rural areas, also stratified the income and living standards of ruralresidents. The changes of income path inevitably have a profound impact to the ruralfinancial environment. How will the increase of farmers’ income and the incomestructure changes induce “the needs induced development model” of rural financialservices, rural financial institutions and the innovation of rural financial products? Andhow will rural financial institutions play a “the supply pilot” role to promote thegrowth of farmers’ income? These questions are the main issues of the financialresearch. Therefore, based on the theories of financial development and rural financedevelopment, the financial exclusive theory and credit allocation theory, study on thedyn amic equilibrium between the rural financial agents to break the rural financialrepression and financial exclusion in China will not only help to enrich rural financialdevelopment theories, but also help to explore the law related to the “three rural”issues.After the success of the anti-crisis, economic restructuring has risen to theprimary task of the Chinese government. The success of rural economic transformationhas become the core of economic transformation. Therefore, it is necessary to exploredeeply the structural and amount change of the farmers’ income, to analyze thestructural condition of the rural t wealth in which the major agents are farmers, toscientifically portray the dynamic equilibrium relationship between rural financialinstitutes and the external environment. The research on building good interactivefinancial ecological environment to stimulate the development of rural finance whichwill increase farmers’ revenue growth can provide a theoretical basis and data supportfor the rapid development and further reform of rural finance, which is essential for thesmooth transition of the rural economy and society.This dissertation consists of seven chapters, whose main contents are as follows:The first chapter is introductory part. By studying the important role of the good interaction between rural financial development and the growth of farmers’ income toChina’s economic development, it describes the background and significance ofstudying on the issue, comments on relevant abroad and domestic literature andintroduces the main content of the dissertation.The second chapter analyzes of the transition process of farmers’ income growthand the structure in China, the changing course of China’s urban-rural income gap andregional income gap in rural China by analyzing statistically large amounts of data.Since the reform and opening up, Chinese farmers’ income raises sharply, which can beroughly divided into three stages, i.e.1978-1992,1993-2003and2004-now. However,China’s urban-rural income gap has been widening after the reform and opening upexcept the first four years. From the geographical aspects, the per capita net income offarmers showed great regional differences significantly. It shows the increasing trendfrom west, middle to the east. In the west regions it is the lowest, while in the eastregions it is the highest. From the structure aspects, the agriculture operating incomestill is the core part of farmers’ net income per capita, even though its proportion isgradually declining. Meanwhile, wage income of farmers grows rapidly. Transfer andproperty income of farmers also increase, but the amount is still very small, whichhave very small proportion in the net income of farmers.The third chapter begins from the definition of rural finance and proves that therural financial development reflects characteristics of the changing of the farmers’income in China from the three aspects of the rural banking, insurance and securitiesindustries by large amounts of data analysis. The three phrases of rural bankingdevelopment coincides with the three stages of farmers’ income growth. The financialdevelopment gap between urban and rural areas reflects and urban-rural income gapcorrespondingly. The regional differences of rural financial development reflect theregional differences of farmers’ income. In all, the statistical analysis confirmed thatthe Chinese rural finance and economic development in rural areas are affected,interdependent symbiotic system.The fourth chapter theoretically analyzes the interaction between the Chinesefarmers’ income growth and the development of rural finance, after introducing thetheories of financial development and rural finance development. It analyzes theapplication of finance development and rural finance development theories in practicein China’s rural reform. Before the mid-1990s, the guiding theory for China’s rural financial reforms is rural credit subsidies theory, while the practice shows up withmany problems. After the mid-1990s rural financial market theory has been receivedincreasing attention. In the beginning of this century, non-perfectly competitive markettheory becomes the guiding theory for China’s rural financial reform, which promotesrural micro-credit increasing, the interest rate market-oriented reform and the rapiddevelopment of private capital in rural financial market. Allowing private capital toenter China’s financial markets, is an institutional breakthrough of Chinese ruralfinancial reform, however which still faces a series of institutional difficulties andshould be improved through further reform.The fifth chapter begins from the theoretical analysis of the promoting andconstraints effects between the farmers’ income growth of and rural bankingdevelopment. And then studies the relationship between them by integration analysis,impulse response, variance decomposition and Granger causality analysis.Theempirical results show that the current per capita net income of farmers has long termequilibrium relationship with the level of agricultural development, the tense offarmers working as migrant workers, rural financial development level, the financialsupport from government for agriculture and the per capita net income of farmers atprevious period. The level of economic development in rural areas, the tense offarmers working as migrant workers and rural residents’ savings will help to increasethe per capita net income of farmers. However, the credit ratios of rural financialinstitutions, and financial support from government for agriculture show a significantnegative relationship with the per capita net income of farmers. The impulse responseand analysis of variance shows that the net income of the farmers has significant“Matthew Effect” in the short term. Granger test shows that the income of the farmersand rural savings rate are Granger cause to each other, while the income of the farmersand rural financial institutions credit ratio has no Granger relationship to each other. Inshort, the empirical analysis shows that the development of the rural banking sectorhas its function to mobilize savings, but the function of transferring savings intoinvestment does not work.The sixth chapter begins from the mechanism of the insurance industrydevelopment of in rural areas to promote farmers’ income, and then analyzes the lagstatus of China’s agricultural insurance development and the reasons. Based on theempirical analysis, the corresponding countermeasures and suggestions are put forward. The empirical results show that the per capita net income of farmers has integrationrelation with agricultural insurance premium income and the amount of insuranceclaims. Agricultural insurance premium income has positive effect to rural per capitanet income, while the amount of insurance claims has reverse effect to rural per capitanet income. Agricultural insurance development can increase farmers’ income, but theeffect is not so large. On one hand, this shows that the compensation degree of China’sagricultural insurance is low, which means its low risk protection capability, on theother hand, it suggests the urgent to develop agricultural insurance to increase farmers’income and improve the living conditions of farmers. Therefore, the governmentshould play a key role in the development of agricultural insurance, by applyingrelevant policies to promote the development of agricultural insurance industry.The seventh chapter begins with the basic concepts of the agricultural industryinvestment fund, and then analyzes the interaction between the investment fund of theagricultural industry, rural economic development and farmers’ income growth, and atlast puts forward the suggestions to further promote the development of the agricultureindustry investment fund. The study points out that in recent years, the rise of theagricultural industry investment fund helps to fill the blank part of the financialservices in rural area, which helps to achieve an effective channel for direct financingfor the agricultural industry, and has a positive role in promoting rural economicdevelopment and farmers’ income growth. In the early stages of development, China’sagricultural industry investment fund should be closed funds in the form of contract,the government should also guide the healthy development of investment funds tosupport the agricultural industry through tax incentives and favorable policies.The creative of this dissertation is to describe the interaction between the Chineserural financial development and the growth of farmers’ income from the concept of the“big finance”, i.e. from the three aspects of banking, insurance and securities, usingstatistical analysis, integration analysis, impulse response and variance decompositionmethod. The empirical study on the effects of the development of rural banking andinsurance industries to farmers’ income is carried out. Granger causality test is used tostudy interactive relationship between the development of rural banking and insuranceindustries and the growth of farmers’ income; the study on the effects of the changingfarmers’ income to the rural financial market development and market efficiency; thesetting up of the institutional framework and the development path of China agricultural industry investment fund. In short, considering China’s rural economic andsocial development status and industrialization of agriculture, agriculturalmodernization and rural urbanization trend, the practical suggestions and theoreticalstudies are given to support the development of rural finance to promote the smoothtransformation of the rural economy.The econometric analysis of this article is not so good, because of the dataavailability and my limited empirical analysis capability. And the analysis onmechanism of rural financial development influencing farmers’ income should bedeepened also.