An Empirical Study On Financial Development And Residential Income Distribution Of China

Since the foundation of China, We have made significant progress in financial industry. Our macro economy developed rapidly. People's living standards have been significantly improved. However,at the same time, the income gap among residents turns to be wider. Some analysts say "there is a'polarization'phenomenon in income distribution, which has seriously affected social stability and the development of the national economy".As we know, China's financial system is endogenous in the economical strategy. The authority implemented the catching up strategy for the first twenty years. In that period, financial resources and economic surplus were moved to heavy industries by way of the financial system. The People's Bank of China was the only financial institution, forming the "unification" financial system. With the enforcement of the Reform and Opening up Policy, China gradually built up a leading status for the state-owned banks in financial system to support the industrialization and the reform of state-owned enterprises. The banks had an obvious bias for the city against the countryside and a strong ownership preference. When it come to the late 1980s, The Government tended to be relied on the financial system, in particular by controlling the interest rates, policy loans, the quota system of securities market, to achieve policy preferences–supporting the development of urban industrial economy and state-owned enterprises.There exists a complex mechanism between financial development and the distribution of resident income. This thesis holds that China's financial development has an influence on the income distribution through the Economic Development Effect, the Bulwark Effect and the Policy-oriented Effect. On one hand, financial development accelerates the economic growth and the fruits of economic growth will eventually show on resident's income; On the other, As the effects of policy bias and the bulwark for access to financial services , economic entities with the different original fortune form a income gap, which turns to be wider with the development of finance.Based on the theoretical analysis and the description of the reality, Using the time series data from 1952 to 2005, this thesis analyses the relationship between financial development and income gap of China. After controlling other factors, Our conclusion is: (1)There exists an inverted u-shaped curve between financial development and income gap; (2) Our results provide evidence that there is an augmented Kuznets effect between financial sector development and income gap. Finally, we put forward several police recommendations on the income distribution police and macro-financial police based on our empirical analysis.