An Study Between The Urbanization And Urban-rural Income Gap In China Based On The PVAR Model

Since reform and opening-up, China has enjoyed a rapid growth in economy and urbanization. According to data released by the National Bureau of Statistics in2011, China’s urbanization rate has reached52.57%. But dual structure of urban and rural is still obvious that segmentation and the hukou system is still a serious impediment to the narrowing of the gap between urban and rural economic, highly lighted by urban-rural income gap. The National Nureau of Statistics stated China’s urban and rural residents’ income ratio is3.1:1in2012, which means the income level of urban area is three times more than that of rural area. Excessive urban-rural income gap will lead to polarization of income in our country, thus increasing social stratification, and directly affecting the social harmony and stable. And will restrict the sustainable development of economy in the long run.This paper is to explore the relationship of urbanization and urban-rural income gap. First, we present a general introduction of the historical changes and current situation of China’s urbanization and urban-rural income gap, and give a structural framework of urbanization and income gap. Then we further theoretically investigate the internal relation and function mechanism between China’s urbanization and urban-rural income gap. Finally we employ panel data model to compute the impact of urbanization on urban-rural income gap. This paper is organized as follows:The first chapter is the general introduction. We lay out the theoretical, practical background, the structure of this paper and innovations.The second chapter is a review of related literature, and points out the shortcomings and limitations of existing literature.The third chapter introduces status about the urbanization development at each stage, the gap with the world’s average level, regional differences of urbanization. And we analyzed the changes and regional differences of urban-rural income gap.The fourth chapter is a more detailed analysis of dual structure theoretical basis and mechanism of the mutual influence of urbanization and urban-rural income gap. It is concluded that the direction of interaction is determined by the net effect.The fifth chapter is the empirical analysis of the interaction between urbanization and urban-rural income gap. We carry out a panel vector autoregressive (PVAR) model to examine the impact and feedback of urbanization and urban-rural income gap, considering the eastern, central and western areas in China.The sixth chapter is conclusion and policy recommendations. We put forward policy suggestions based on our study, and extracting shortcomings of this paper.Study shows that the development of population urbanization will help narrow the urban-rural income gap in nationwide, central and western regions, and meanwhile the urban-rural income gap will hinder the process of population urbanization. However, results of the eastern areas shows population urbanization will widen the urban-rural income gap, and to some extent, the expansion of urban-rural income gap will improve the population urbanization level in a short time. Considering the connotation of urbanization that labor transfer from agricultural to non-agricultural department, the dual economic integration is unfavorable to narrow urban-rural income gap in early period, but this effect will not continue, that may later presents an alternating effect of promotion and inhibition. For the eastern region, the dual economic structure will firstly narrow the urban-rural income gap and then expend it with obvious time lag. While, for the western region, economic integration can significantly reduce regional urban-rural income gap. In a word, the expansion of urban-rural income gap will make dual economic structure more significant, which is to the disadvantage of the development of economic integration and the differentiation of the agricultural and non-agricultural sector will be even more significant. Therefore, policy makers cannot simply make "one size fits all" policy but take the regional characteristics into consideration, implementing regional policies.There are two innovations of the paper. First, almost all of the domestic researches are based on the national level, and there are a few empirical studies on the influence of regional urbanization and urban-rural income gap which can show the regional difference. In this paper, using PVAR model to study the relationship between urbanization and urban-rural income gap, has enriched the empirical and theoretical content. Second, this paper uses PVAR model which combines the panel data estimation method with vector autoregressive model, it considers all variables as endogenous variables, namely dealing with an endogenous system. And using panel data overcomes the lack of time sequence data.There are also two inadequacies. First, empirical research only discusses the relationship between the urbanization and urban-rural income gap. It doesn’t prove the conduction mechanism of interaction between them, and the main reasons for the differences between regions. Second, for the index selection, we do empirical reserch by using population urbanization data, but in fact, the index has problems of statistical errors and diameter changes which will affect the accuracy of the conclusion.