An Empirical Study On The Relationship Between Financial Development And Urban-Rural Income Disparity

China has made stupendous economic achievement over the past 20 years. China's financial development gained rapid progress. The monetization of china's economy is 1.63 in 2005, the financial interrelation ratio is 2.89. The GDP keep fast development with 9.64% growth rate, however, residential income disparity of China has enlarged. The Gini coefficient of the whole resident income distribution in China has gone up from 0.32 in 1980 to 0.45 in 2003. The urban-rural income disparity is worse, urban-rural income ratio was 2.57 : 1 in 1978, however, it has gone up to 3.22 : 1 in 2005. Under the above background, the dissertation analyses the relationship of financial development, rural financial development and urban-rural income disparity .The following are the contents and basic conclusions:Firstly, this paper chooses M2/GDP index and the urban-rural income Gini coefficient to reflect the level of financial development and income distribution disparity between urban and rural residents. We inspect the level of financial development and urban-rural income disparity respectively. Then using econometric methods empirically analyses the causal relationship of the above both. The research shows that there is a one-way causal relationship between financial development and urban-rural income disparity. Whether long-term or short-term, the financial development is the Granger cause of urban-rural income disparity, the country's overall financial development does not narrow the income gap between urban and rural areas, insteadly expand the urban-rural income gap. The urban-rural income disparity, which has self-reinforcing "inertia", is not the Granger cause of the financial development.Secondly, in order to solve the mystery of the country's financial development widening the urban-rural income disparity, this paper investigates the rural financial development, analyses China's rural deposits and lending and calculate the economic monetary degree and financial interrelation ratio in rural economy. The research shows as the following: (1) The total deposits of China's countryside grow rapidly, the structure of deposits has changed greatly in the past 10 years, the proportion of deposits in the agricultural bank of china declined, while the proportion of deposits in rural credit cooperatives increased and reached more than half, the proportion of postal savings is small, but rising fast. (2) the amount of loans in countryside grow rapidly, but on one hand, the proportion of rural loans in the financial institutions total loans decreased significantly, on the other hand, the sources of loans in countryside have changed, the proportion of the agricultural bank of china's loan in total loan declined, the proportion of loans from rural credit cooperatives in total loan increased. The proportion of agricultural loans in total loan decreased, the proportion of loans to township enterprises increased. (3) Rural finance developed has improved greatly, for example, economic monetary degree and rural financial interrelation ratio in 2005 are twice higher than their beginning level in 1978. However, we find rural financial development is relatively lagging compared to national financial development. The disparity between rural financial development and national financial development become larger and larger.Thirdly, this paper analyses the role of financial development upon resident income with considering physical capital and human capital. Then this part measures the urban-rural financial development disparity, and positively analyses the effects of the urban-rural disparity of physical capital, human capital and financial development on urban-rural income disparity. The research shows as the following: Financial development has a positive role on residential income growth. However, there is a huge and expanding financial gap between urban and rural areas. There are also large physical capital and human capital gap between urban and rural areas, but the gap relative to the early stage of reform has been narrowed. In urban-rural income disparity model, financial development between urban and rural areas is the important reason for the urban-rural income disparity. That is to say, China's financial non-balanced development between urban and rural areas led to a widening income gap between urban and rural areas. Therefore, speeding up the development of rural financial is an important measure to narrow the urban-rural income.