A Study On Income Distribution Effects Of Financial Development In China

During 30 years of reform and opening up, China has made remarkable achievement. At the same time, China's financial development is lagging behind, and economic growth has brought rapid expansion of the income gap. A large number of foreign researches on the relationship between financial development and income inequality shows that there is closely linked between the two, especially with the more micro data came out. A large number of empirical studies show that financial development expands economic opportunities, reduce poverty and improve income inequality. With the deepening of China's financial reform, financial development of China's important role in long-term economic growth will gradually appear which will bring the improvement and increase in of income inequality in this process which attracts enough attention. If financial development can not only promote the long-term economic growth and also help to improve income distribution, then the policy of promoting China's financial development sustainable economic development in China will be of great significance.Viewing of studies on the impact of financial development on income distribution increases gradually, the paper research on China's financial development on income distribution impacts of a multi-level, multi-angle theory and empirical research based on our financial system and financial market development, historical background, in the existing literature on the basis of extensive. In this paper, effects of income inequality, financial development the micro, meso and macro effects of three levels, combined with China's actual economic background of the various effects are investigated in detail.Firstly, we start from the micro-level analysis of income inequality. The micro effects of financial development include human capital investment and GJ effect. This paper creates an economic growth model in dual economic structure, which inherits and develops the Galor and Zeira (1993) theory. This model concludes that the urban-rural differences in human capital accumulation technology, and financial development, regional inequalities, leading to a reduction of income inequality, financial development of human capital investment effects can not be played, there may even make financial development instead of increasing the income inequality. An Empirical Study of domestic confirmed theoretical prediction of the proposed model.In this paper, we illustrate the model of the GJ analysis of the framework and ideas presented on the basis of GJ effects.The core idea is that in the early economic development, the access to financial services is difficult and thresholds who obtain high return on investment are very few, thus expanding the income gap between financial development; when economic development has entered a developed stage, the low threshold of access to financial services and thresholds who obtain high return on investment are much more, thus further reducing the financial development of the income gap. In this paper, the adaptability of GJ effects in our analysis, the Government's intervention in the financial sector as well as regional differences in financial structure, making the country does not meet the conditions of GJ effects, but in China since reform and opening up difference in the development of inter-regional non-state financial institutions lead to inter-regional differences in access to financial services, so the gap between the significance of GJ effects in areas may be established. Empirical research related providsevidence for the hypothesis to a certain extent.Secondly, this dissertation analyzes the geographical distribution effects caused by the level of financial development of the regional imbalance. The sustained rise of the imbalance of financial resources in the regional in recent years leads to the expansion of regional disparities. Analysis on the financial development of non-equilibrium nature of the contribution of the income gap finds that the rate of financial development gap caused by internal imbalances in eastern region is 22.97%, central and western is weak, and inter-regional financial imbalance of the regional income gap between the contribution rates reached 80.08%.Again, this dissertation analyzes the poverty and financial development effect generated by the distribution of income in the macro level.This study shows direct and indirect effects, the difference between the two main groups is the approach by which financial development affects the lowest income people. The empirical evidence shows that the impact of China's financial development on poverty reduction in rural areas does not play an active role in the reduction of poverty. In other words, the effect of China's financial development on the reduction of poverty is the negative effect of expanding income gap, and then this dissertation gives a reasonable explanation.Finally, in the empirical analysis of China's financial development on income distribution, the model estimates that the provincial level panel of financial development significantly expands the gap between urban and rural areas, and 249 cities above prefecture-level panel data model estimation results also shows that positive correlation between the two exists. And the two models find that inverted U-shaped relationship between the two and the expanded Kuznets hypothesis exist in financial development and urban-rural gap. In addition, the Kuznets inverted U curve relationship exists between urban-rural gap and economic growth in China, privatization significantly expands the gap between urban and rural areas, and the number of students significantly decreases the rate of rural-urban gap.The results of VAR model shows that a long-term stability relationship exist between China's financial development and income inequality and financial development has a positive effect on income inequality. Granger causality test shows that economic growth is the Granger causes of financial development and financial development is the Granger causes of income inequality, financial development reduces income inequality effectively. At the same time impulse response analysis concludes that the short-term changes in financial development in China will remain on income inequality in China and have a significant positive effect on short-term, further expands income inequality. On the basis of the above, this paper seeks to make some policy recommendations to improve income inequality in China's financial development.