An Empirical Study of China’s Rural Formal Financial Development and Rural Income Inequality

Abstract

Based on the VAR model, co-integration analysis and error correction model, the article did the research on the relationships of rural financial development, rural credit structure, rural employment structure and rural income inequality, and took a Granger causality test. The result indicates that in the long run, rural finance development has a stable long-run equilibrium with rural income inequality, it is a negative correlation; in the short term, they have short-term fluctuations in the same direction. Besides, Results show that rural formal financial development is not Granger cause for rural income inequality, while rural income inequality is Granger cause of rural formal financial development, it shows that at present, China’s rural formal finance is still at the status of "complying with the demand”, rural formal financial operation lacks efficiency for the rural economy; and impacts rural income gap weakly; A two-way Granger causality relationship between financial structure and rural income inequality shows that township enterprises loan and rural income inequality influence each other mutually.