Research On The Relationships Between Financial Development And Urban-Rural Income Disparity

The dynamic development of relations between financial development and income gap has become a hot in the current study of financial theory. Firstly, based on the literature reviewed, this paper presents three channels that financial development has impacted on the income gap: economic growth channel, the access to financial services channel and economic fluctuation channel. And the access to financial services channel consists of three effects:threshold effects, the dualistic economic structure effects, poverty reduction effects, which have dynamically affected the residents'income gap.Secondly, in the backgrounds of the rapid financial development and the large income gap between urban and rural areas, we set the western region as a sample, whose financial development and the urban-rural income disparity was described in the article by comparative analysis with time-series models and cross-section models. Then we took empirical research on the relationships between financial development and urban-rural income disparity through panel data from 1978 to 2008, the results showed that, on the contrary, the financial development has widened the income gap between urban and rural areas. According to this result, the article analyzed financial services and financial resource utilization, then revealed the idea that there are dualistic structure in the financial sustainment, three reasons were placed as follows:weak agricultural quality and rural financial supply shortages constrained the availability of agricultural loans; Because of higher risks, fewer small financial institutions and difficulties of guaranty assures, peasant households and small agricultural enterprises have difficulties in obtaining loans; The capital of the western region outflows seriously, which made the county financial system unsustainable.Finally, the article suggested that our country should develop the rural finance and alleviate the dualistic structure in financial supply:informal finance should not be strictly controlled, micro finance should be extensively developed, the system of agricultural insurance should be set up, county financial institutions should be reformed and the funds-back channels should be created. The policy of this article is that, the finance should not become implications which only transferred the remaining money, but an effective channel which should help the poor to improve their income distribution.