Has financial development made income more equal? – From the perspective of regional development imbalance

Abstract

Narrowing the urban-rural income gap and alleviating income inequality are pressing challenges that need to be addressed in China at present. Based on inter-provincial panel data in China, this paper establishes a partially linear function-type coefficient model to explore the heterogeneous effects of financial development on the urban-rural income gap and its channel mechanism from the perspective of regional development imbalance. The empirical results show that the financial development can exert the urban-rural income gap convergence effect only when the economic level reaches a certain threshold, and the marginal effect increases with the improvement of the economic level. In addition, the threshold of economic level is not the same for different channel mechanisms, leading to differences in the income gap convergence mechanisms under different development stage: at the end of the sample years, most provinces can utilize rural industry revitalization mechanism, while less than half of the provinces can utilize the industrial advanced change mechanism. Based on this, this paper proposes the following recommendations: establish policy priorities according to the region's own development stage and implement regional differentiated financial development strategies.