Government Size,Economic Agglomeration And Urban-Rural Income Gap

The main task of this paper is developing the classic C-P model by introducing government size and exploring the changes of the equilibrium of economic.Then we analyze the relationship between government size and economic agglomeration,the economic agglomeration and the urban-rural income gap.Finally,find the relationship among government size,economic agglomeration and urban-rural income gap.This paper has two parts,one is theoretical analysis,the other is empirical test.Firstly,we deduce an instantaneous equilibrium from the new C-P model,then we can get two propositions by using Fujita'method in his paper.The first one is that the probability and the degree of economic agglomeration will reduce if we introduce government size to C-P model.And the second proposition points out that when the cost of transportation decreases,a region's enhancement of economic agglomeration will lead to the income gap between two regions first decrease,then increase.We can use a U-shaped curve to describe their relationship.Secondly,in order to verify whether the two theoretical propositions are true or not,this paper use the data of 228 prefecture-level cities in China to do empirical tests.We can prove the two propositions are true after we finish the regression analysis by establishing dynamic panel data model and using GMM method.Finally,we can get a conclusion that:when the cost of transportation decreases over time,the expansion of government size will lead to the income gap between two regions first decrease and then increase.This paper proposes some policy suggestions based on the theoretical research results,for example,in so as to narrow the income gap between urban and rural areas,local governments should communicate and cooperate with each other and formulate policies to adjust the allocation of human resources among local governments;government should formulate policies that favor the rural areas and accelerate the development of rural urbanization,so as to avoid the negative impact of excessive economic agglomeration.