Empirical Analysis Of The Relationship Between The Urban-rural Income Gap And Financial Development Based On The1994-2012Provincial Panel Data In China

After the reform and opening up, China’s economy has entered a period of rapid growth,with an average annual GDP growth rate remained at about9%.Compared with the rapid risein urban per capita, the growth of rural residents’ income is very slow, and the problem of toolarge urban-rural income gap is gradually prominent. In the year2012, China’s urban-rural percapita income ratio reached3.10:1, and the absolute income gap rose to8172yuan. WorldBank report mentioned widespread and the gradual expansion of China’s urban-rural incomegap is too large, and it will be the most significant threat to China’s future economicgrowth. Finance has gradually become the core strength of the promotion of moderneconomic development, playing a pivotal role in the financial intermediation process, and thefinancial sector is inevitable level of revenue growth through the indirect impact of capitalflows control different groups of people, but the theoretical economics do not have adefinitive answer on the impact of financial development on income distribution. While thereexists serious rural-urban distribution imbalance in the development of China’s financialfactors of economic and social development, and this imbalance is quite likely to result in theuneven distribution of income in achieving their own development.Therefore, this article learned from theoretical literature at home and abroad, and then onthe basis of summarizing the advantages of their research and the insufficient points,improved the research methods and research ideas followed by sorting out the developmenttrend of China’s income gap between urban and rural areas with financial characteristics.After that, this paper expanded the development of the financial into two levels of the"quantity" and "quality", namely the scale of financial markets and financial efficiency ofresource use, introducing the level of economic development, government action, changes inindustrial structure as three control variables with fixed effects Variable Intercept Panel datamodel. Taking into account the characteristics of China’s financial development stage, thispaper used E-G two-step test to test the empirical relationships by studying the1994-2012provincial panel data of China’s financial development and urban-rural income gap,researching the geographical features of empirical relationship in China as well. The paperalso made a certain amount of discussion and analysis of the path and the internal mechanismof the financial development’ effects on China’s urban-rural income gap to look for thefundamental way of China’s financial development’ effects on income distribution in urban and rural areas, finding the key to use the financial development to solve the problems of theurban-rural income gap finally.The study found that:(1) Growth in the size of China’s financial industry is one of thereasons for the expansion of China’s urban-rural income gap, and both the long-term andshort-term causal relationship test results are stable, since the deepening reform of thefinancial system in China, the rapid development of the financial markets has exacerbated thesituation of uneven income distribution in urban and rural areas;(2) The efficiency in the useof the financial resources and the income gap between urban and rural areas showed anegative correlation between financial resource utilization. The financial efficiency cannarrow the urban-rural income gap in China, However, the loan to deposit ratio which is therepresentative of China’s financial efficiency of resource use has been maintaining the trendof decline and even stable, so the reduction of China’s financial efficiency of resource use alsoexpanded China’s urban-rural income gap;(3) China’s financial development and urban-ruralincome gap empirical relationship showed regional differences in the characteristics. In theeast, the financial efficiency significantly affected the income gap between urban and ruralareas negatively, while the impact of the financial scale is not significant; In the central region,the scale of the finance and financial efficiency are significant in affecting the income gapbetween urban and rural areas, and the direction is the same as the overall test results; Thefinancial scale in the western region has played a significant role in the income gap betweenurban and rural areas, because the two variables are positively correlated;(4) China’s financialdevelopment affects urban and rural income gap primarily through three ways: First, there is aserious urban and rural financial phenomenon of dual structure leading to the non-equilibriumeffects on economic development and even the income growth; Second, there are differencesin the revenue structure of urban and rural residents, and financial development benefits thecity residents ’property income portion more directly, benefiting wages and operating incomesection more indirectly; Third, there is a large gap in the efficiency of the allocation offinancial resources between rural and urban areas, the contribution to the growth of farmers’income by promoting the development of agricultural economy is limited.At the end of the paper, combined with the conclusion of the study and related practicalexperience, the author come up with some related policy reform proposals, and then made apersonal recommendation and outlook for this article’s shortcomings in the research processas well as the research in the future.