Empirical Study On The Relationship Between Financial Development And Urban-rural Income Gap In Shanghai

Through 30 years of reform and development, China has developed from a poor backward country into the world’s second-largest economy, people’s living standards have been improved dramatically. Along with the rapid development of economy, many problems about the livelihood of the people is becoming more and more prominent, the income gap between urban and rural areas is one of them. There are lots of influence factors of the income gap between urban and rural areas, one of the most important is financial development. As China’s financial center, Shanghai has the highest level of financial development, at the same time there also has certain income gap problems between urban and rural areas in Shanghai. Studying the relationship between financial development and urban-rural income gap in Shanghai, exploring the internal influence mechanism, analyzing the problem and putting forward the policy advice, have important practical significance to build a harmonious society.In order to ensure the scientific nature of the research, this paper adopts analysis methods of theoretical analysis, specification analysis and empirical analysis to do empirical research on the relationship between Shanghai financial development and urban-rural income gap. Firstly, this paper reviews the related literatures researching on financial development and income gap of domestic and foreign, to understand the history and current situation of related researching fields. On the basis of classical theory in financial development and income gap, analyzing the mechanism between financial development and urban-rural income gap by output and investment channels, coming to the conclusion that financial development has affected urban-rural income gap through salary income, four main paths of income like business income, property income and transfer income; Secondly, this paper describes the status quo of Shanghai’s financial development and urban-rural income gap respectively and analyzes the financial development’s influence on urban-rural income gap qualitatively through four income sources. Found that the financial development has expanded urban-rural income gap, but the growing trend of income gap has showed relatively stable in recent years; Finally, this paper uses relevant time series data from 1978 to 2012 to build indicators of financial development scale, financial development efficiency, economic development and industrial structure, through corresponding VAR model, VECM model, Granger causality test, impulse response and variance decomposition to research the impact of Shanghai financial development on urban-rural income gap, on the basis of the research, puts forward some policy recommendations to reduce Shanghai urban-rural income gap.The empirical result shows that in the long term there is stable relationship between financial development and urban-rural income gap, the expansion of the scale of financial development of Shanghai can narrow urban-rural income gap; while the enhance of the efficiency of financial development of Shanghai will bring social inequality of income distribution, resulting in expansion of urban-rural income gap. It shows the imbalance of financial development between Shanghai urban and rural areas, financial resources flow to urban areas and the financial development of rural areas is slow. From the perspective of financial development, this paper puts forward some policy suggestions to reduce Shanghai urban-rural income gap on the basis of the empirical analysis results: Shanghai should attach great importance to the rural financial development in the meanwhile of perfecting a diversified financial system and improving the efficiency and quality of the financial system. It shall gradually establish rural capital recycling mechanism, standardize the development of informal finance, energetically develop the rural microfinance institutions, perfect the rural credit guarantee system, speed up the development of policy-related agricultural insurance system, and vigorously promote rural financial innovation, enrich rural financial products and services.