From The Perspective Of Financial Development In China's Urban-rural Income Gap

In theory,financial development can optimize capital allocation,lower transaction cost and promote the changes of residential saving to investment,and therefore accelerate the growth of the economy and improve the welfare of the whole society. But the current situation in China is conflicting with the theory.Since the reform and opening up,the gap between rural and urban citizens has been enlarged and being the biggest in the world with the rapid financial development in China.In the setting of China's macro economy,financial development is also rendering dualism between the urban and rural areas,with the rural residents only provided with far insufficient financial services.As an enlarging income distribution inequality may threaten the stability of the country,this thesis analyzes this issue from a new perspective:the financial development.Based on the previous theories,this article attributes the financial development inequality to entry barrier effect(income,scale of economy and human capital,etc) and financial depressing in the rural area that rural financial institutions transfer capital from the rural to the urban area and the controlling of informal finance.An empirical model based on the data from 1978 to 2008 supports the theoretical analysis and indicates financial development is the Granger effect of the income gap in the long run.The article also provides some policy suggestions in the end.