The Income Distribution Effects Of Financial Development In China

It has been30years since china’s reform and open policy,during which period China’s economy has maintained a average yearly growth rate of more than9.8percent and China’s economy has exceeded Japan to be the world’s second largest economic entities which is second only to the USA.However,what companies the high-speed economic growth is problems such as continuous expansion of disparity of income distribution,rapid expansion of income gap between the rural and the urban,as well as among different districts and different social classes. According to the World Bank’s survey, China’s Gini coefficient has rose from0.32in1980to0.477in2001, surpassing0.4which is internationally acknowledged as the alert line. China’s Gini coefficient rank85in120countries, which is approaching to the level of some Latin American countries and African countries with deteriorating income distribution situation.The rural-urban income gap is particularly obvious which grew from1.8percent in1980to3.36percent in2008.Continous disparity of income distribution will not only do harm to china’s expansion of domestic demand and economy transition,but also give rise to serious economic,social and political problems. It will make sense to study how to narrow income distribution gap while maintaining economy growth.On the bassi of the relationship between finance development and economy growth, this article will expand its scope to the level of studying income distribution and analyzing the income distribution effect. Through analyzing the function of the finance system, this essay summarizes four mechanisms, through which the finance development can realize its income distribution effect. These four mechanisms are growth mechanism, threshold mechanism, on-equilibrium mechanism and technique progress mechanism. The practice shows that, in china the development of finance has expanded the overall income distribution gap and the rural-urban income distribution gap, but it has different impact on regional income distribution gap. In the east region and the southeast region, either the expansion of the scale of finance development or the increase of finance development efficiency will evidently decrease the disparity of income distribution in the east region. In the central and west region, the enlargement of the scale of the finance development will sharply increase the disparity of income distribution. In the meantime, promoting the efficiency of finance development will have an important impact on short-term disparity of income distribution. The survey on rural financial development shows that in China rural financial development will obviously expand the income distribution gap within rural areas and it will also evidently extend the disparity of rural-urban income distribution. This is because that large amount of rural financial resources flow to the urban areas and that rural financial resource is not easily available to everybody.Firstly, this article collates the finance development theory and the income distribution theory. And it analyses the mechanisms that influencing income distribution, including mechanism of economic increase, threshold mechanism, non-equilibrium mechanism and finally mechanism of technique development.These four mechanism will produce the welfare distribution effect.Secondly, by using time series data and the empirical analysis method, this article studies national finance development’s impact on the overall income distribution effect, the study shows that by using financial interrelation ratio to measure the variables,we can find that there exists an inverted-shaped U model relationship between the level of financial development and the income distribution gap.Consequently,the government should establish policies to promote the financial development both in the central and west region and the rural areas. By doing that we can narrow the income distribution gap between regions and shrink the rural-urban disparity of income distribution. We can also achieve harmonious development between regions and realize harmonious development between the rural and the urban.Thirdly, on the basis of VAR model, we use the empirical method to study financial development’s rural-urban income distribution effect. The study shows that the scale of finance development is the most important factor that influences the rural-urban income gap, next are GDP per capita and the urbanization level. However, what contributes the least is the efficiency of finance development, implying that it has little impact on the change of rural-urban income gap.Fourthly, this article analyses the regional income distribution effect of China’s finance development. The results show that the east region is already in the second half of the Kuznets inverted U curve. We can also find that the central region is in the middle part of this curve while the west region is in the first half of this curve.we can draw the conclusion that finance development will shrink the income gap in the east region, expand that of the west region and intensify the disparity of income distribution in the west region.Nextly, this essay studies rural financial development’s inner income distribution effect among rural areas and rural financial development’s rural-urban income distribution effect. The results indicate that the financial development in the east region will impose an active impact on reducing income distribution gap between rural areas. Financial development in the central and west region presents the same characteristics in the following aspects, such as rural loans, rural deposits and the ratio of converting rural deposits to rural loans. The enhancement of these factors will respectively expand the local rural income gap to different degree. Insead of decreasing rural-urban income gap, the increase of rural financial scale and the promotion of the rural financial efficiency enlarge the gap.Finally, apart from summarizing the related theories, this article recommends some policies. We should reform the financial system to assure the fairness of financial development’s income distribution effect. It is recommended to establish a solid financial system to promote economic growth, narrow income distribution gap and realize the win-win situation between economic growth and fair income distribution. And by doing that we can also promote the equilibrium deployment of financial resources among regions as well as between the rural areas and the urban areas. Through establishing a solid financial system, we can also realize the widening of financial development and cut down the threshold of finance services so that more people can enjoy the benefits of financial liberalization. Besides, we should establish a multilayered rural financial system with wide coverage and sustainable easy accesses and put more emphasis on the three dimension rural issues.we should also encourage private capitals to go into rural financial market.In order to heighten the confidence and courage in servicing the three dimension rural issues, we should further improve the development of rural micro-financial institutions, which are represented by village banks, the micro loan companies and rural mutual financial cooperatives.