Study On Impact Of Rural Financial Development On Urban-rural Income Gap In China

After reform and opening up to the outside world, urban-rural disparity has beenbroadened continuously, and it’s a potential threat for harmonious society construction.Urban-rural income gap (short for income gap below) is the major part ofurban-rural disparity. Since1985, the relative ratio between urban per capitadisposable personal income and rural per capita net income is getting higher andhigher, and so far it already reaches3:1. Reasons lead to such disparity arecomplicated, majority of research resort to following reasons: historical reasons asprice scissors of industrial and agricultural products at the beginning of reform andopening up, Hukou system that makes a clean break between rural residents and urbanresidents and hinder the farmers coming into the city, as well as the Governmentintroduced a number of "urbanization tendencies policy and so on. Recent few years,there were some researchers studied relationship between financial development andincome gap, but just few have explained income gap from perspective of ruralfinancial development. This paper will study on the impact of rural financialdevelopment on urban-rural income gap, so it has important theoretical significance torich our knowledge about income gap problem, and it’s also helpful to narrow theincome gap, construct harmonious society.The theoretical analysis shows that rural financial development will helppromote economic growth, and further narrow the income gap; Income distributionsystem and threshold effect will restrain the development of rural finance, thereforeenlarge the income gap; And other financial factors such as finance dual structure andfinancial crisis also will enlarge the income gap. In addition, empirical test is to buildup VAR model based on time-series data and panel data model. Use urban-ruralincome ratio (IG) as an explanatory variable, rural financial investment ratio (RFIR)and rural financial efficiency (RFE) as explain variables. Besides, use urbanization, fiscalexpenditure ratio on agriculture, proportion of rural fixed assets as control variables.Theoretical model of time-series data is based on national time-series data duringperiod of1981to2009, results show: In short-term, expanding RFIR will widenurban-rural income gap, while enhancing RFE will narrow the income gap; inlong-term, RFIR and RFE improvement is conducive to narrowing the income gap.Panel data model uses the data of China’s30provinces, centrally administered municipalities and autonomous regions during period of2005to2009. Results showthat from the nationwide aspect, expansion of RFIR and the development of RFE willnarrow the income gap; form regional aspect, the expansion of RFIR is conducive tonarrowing of the income gap in east region and west region, and the middle regioneffect is not significant; the development of RFE is to help narrow the income gap ineast region and west region, adverse in middle region.These conclusions show that the development of rural finance will help narrowthe income gap between urban and rural areas in the long run, so China should focuson the healthy and ordered development of rural finance to improve RFE and toexpand RFIR, and narrow the urban-rural income gap finally.