An Empirical Research Of The Bank Credit Level On The Impact To Urban-Rural Income Gap In Shandong Province

Since the reform and opening-up, the economy in Shandong has achieved quite great developments and residents’income has increased continuously. However, income gap especially the urban-rural income gap is being widened. Meanwhile, financial institutions, with the bank as a representative, have grown rapidly in resent years. As the intermediary for allocating capital in real economy and the most important department to guide the flow of funds into economy, financial institutions make outstanding contributions to economic development and income increasing in both urban and rural areas. However, due to a high degree of monopoly on financial institutions like banks, bank credit is difficult to flow to some impoverished rural areas. That makes the efficiency of fund allocation low, and has a negative impact on narrowing the urban-rural income gap. Based on this, the paper will analyze how banks affect the urban-rural income gap in Shandong from the perspective of the bank credit level.This paper analyzes the current situation of urban and rural residents’income level in Shandong, finds that absolute income gap and relative gap continue to expand as both urban and rural income increase generally. Although the extent of the urban-rural income gap in Shandong is slightly lower than the national level, the growth rate of relative income gap is higher. In further study, we divide the whole Shandong province into east and west, conclude that income level in the west region is lower than the east region, while urban-rural income gap in the west region is wider. This paper studies qualitatively the influence mechanism and conduction path of the bank credit level on income gap. We find that interest rate control and credit rationing restrain the funding needs of the rural areas which play an adverse role in narrowing urban-rural income gap. However, the efficiency of bank credit use and financial deepening narrow the income gap between urban and rural areas through stimulating economic growth in rural areas. Then this paper analyzes factors which affect the income gap qualitatively based on panel data in seventeen cities of Shandong province. We select scale index and efficiency index of bank credit, introduce other control variables that affect the urban-rural income gap to avoid false causality, like economic growth index, government influence index, urbanization level index and opening degree index.In empirical analysis, after unit root tests based on panel data, the paper finds indicators are first-order difference stable time series. Then suggests that indicators exist cointegration relationship at1%significance level through panel cointegration tests. Finally after the F-test and Hausman test, we establish a fixed-effects model to analyze factors which affect the income gap qualitatively. The results show that, the bank credit scale and the efficiency of bank credit use are both positively related to income gap. At the last, based on the analysis results, the paper gives some recommendations on developing economy in rural area and narrowing the urban-rural income gap from the perspective of rural financial services.