An Empirical Study On The Effects Of Total Factor Productivity On Urban - Rural Income Gap

China’s economy has entered a new normal, declining in economic growth. Income inequality is still one of important problem restricting the development of our country’s economy. In 2015, urban disposable income is 31195 yuan, compared with rural resident disposable income only 11422 yuan, urban and rural resident’s income ratio is 2.73:1.This is the second time that the ratio falls to 3, and it is also the minimum value since 15 years ago. But the ratio is still very high. On another hand, under the economic background of the new normal, two factors the demographic dividend and Kuznets effect that supported the economic developing in the past will gradually disappear. Total factor productivity containing technical and organizational management factors will be the key to promote the development of economy in the future. This will certainly bring some influence to urban and rural income distribution problems. Concluding that studying the income gap between urban and rural areas from the perspective of total factor productivity seems to be very necessary.Analyze the theories of the TFP and urban-rural income gap. Find out the mechanism of action of TFP on rural income gap? Analyze the current situation of the income gap between urban and rural areas. Because of the spatial spillover effect, using spatial panel models to analyze urban-rural income gap is more accurate. Therefore, this paper analyzes the impact and spatial effects of TFP on the income gap between urban and rural areas based on 2001-2013 data in panel 30 Chinese provinces, spatial panel model.In this article, first of all, by using provincial data to examine the spatial correlation on the income gap between urban and rural, and test showed that most Moran’ I index are under the 5% level, and the index are positive value, which verify the hypothesis that spatial correlation exists in the income gap between urban and rural residents.Secondly, by selecting and testing the model, we finally choose a spatial Durbin time-fixed effects model to analyze the research object. The results show the rho estimate value is up 1% significance level, which has proven the existence of space-related factor and overflow assumptions in income gap between urban and rural residents once again.Finally, by analyzing the effect of spatial Durbin model decomposition, we make conclusion that in direct effects TFP coefficient is positive and significant, indicating that improve TFP in region will widen the income gap between urban and rural residents. In indirect effects, TFP is also positive, indicating that the increasing of TFP in neighboring regions will widen the income gap between urban and rural areas in this region.