The Study Of The Nexus Between The Unequal Financial Development And Urban-rural Income Disparity

Recently, income difference between cities and rural areas has become the most serious problem in income disparity. It is gradually affecting our present development and stability and arousing a wide concern in management and academic circle. On a nation-wide scale, the difference between cities and rural areas takes 75% of the total income difference and even over 80% in some provinces. As shown in a nation-wide survey conducted by Chinese Social Science Academe Economics Research Group, China's income difference between cities and countryside has growing bigger and bigger. Taking medical treatment, education, unemployment security into account, China's income difference between cities and countryside is the biggest in the world, up to 6:1, higher than Zimbabwe. Many scholars have discussed the causes of the income difference from different aspects and provided rich documents. The causes can be concluded as follows: specific stage of economic development, dualistic division of cities and countryside, relative productivity difference between cities and countryside, government control upon farm produce, unfair tax on farmers, labor market division between cities and countryside, prejudice of social welfare and social security against rural residents and etc. Among these reasons, the reason of financial development has been mentioned but without specific research, which leaves room for further research. Our financial development strategy has been "city-oriented" for a long time, which causes the economic surplus flowing from countryside into cities as private farmers' savings, especial when financial agent retreated from countryside on a large scale in 1998. According to financial development theory, financial development is interrelated with economic development and income distribution. Lack of funds and financial service in countryside badly affected the increase of income in rural areas.As for the interrelationship between unbalanced financial development and the income difference between cities and countryside, this paper provides the following two channels through which financial system influence the income difference: 1. unbalanced financial development → rural funds flowing into cities → rural savings transformed into tangible investments → simple reproduction in rural area vs. expanded...