Abstract
China’s economic development has maintained a rapid growth trend since 1978, but the problem of imbalanced income distribution between urban and rural residents also has been increasingly aggravated. This paper discusses the relationship between financial development and urban-rural income disparity and examines the impact of urbanization on the relationship between financial development and urban-rural income disparity. Then this paper selects the provincial panel data of 28 provinces in China from 1978 to 2014, using GMM dynamic model and fixed effect panel model, respectively, to do the empirical test. The results show that: 1) the imbalance of urban and rural financial resources is exacerbated by the financial threshold effect, leading to the fact that the financial development-measured by scale, efficiency and structure, respectively, expand the urban-rural income gap. 2) The developing urbanization will widen the urban-rural income gap. However, as the urbanization and mainly the urbanization of land is rapid in China, the expansion effect of the increasing financial development level on the income gap between urban and rural residents in China will be weakened with the acceleration of urbanization based on the financial threshold effect. It provides empirical support for the financial reform and for the assumption that urbanization development reduces the income gap between urban and rural areas.
Highlights
The results show that: 1) the imbalance of urban and rural financial resources is exacerbated by the financial threshold effect, leading to the fact that the financial development-measured by scale, efficiency and structure, respectively, expand the urban-rural income gap
As the urbanization and mainly the urbanization of land is rapid in China, the expansion effect of the increasing financial development level on the income gap between urban and rural residents in China will be weakened with the acceleration of urbanization based on the financial threshold effect
The coefficient of the generalized method of moments (GMM) dynamic panel model is equal to 0.153, indicating that the financial development scale for each increase of 1%, the urban-rural income gap will expand by about 0.153%
Summary
Since 1978, China’s economic development has maintained a high-speed growth. The achievements in economic construction have been witnessed, such as the improvement of resident income, the vigorous evolution of the financial market, and the smooth progress of urbanization. China still faces serious obstacles and challenges on its way to be the global economic leader: on one hand, China’s per capita income level, financial development and urbanization quantity and quality indicators are still low; on the other hand, the national wealth accumulated by economic growth has not been evenly distributed among all residents, in particular between the income of urban residents and that of rural residents. The imbalance of income distribution between urban and rural residents has become a major problem to be solved urgently for China’s economic development. The acceleration of urbanization in China has an important impact on the allocation of financial resources and the income level of urban and rural residents
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