Educational Investment And The Urban-Rural Income Gap

In the modern economy, the income distribution has been the focus of scholars and policy makers. Research on the causes and effects of the income gap are also numerous. These studies include both theoretical analyses and empirical tests; in spite of time-series studies and research in a specific area, there are also transnational studies. Dispute of these studies is that the causes and effects of changes in income inequality. Can economic development spontaneously improve income-distribution inequality? How do changes in income disparity affect the macroeconomic variables? If the government wants to control the income gap, what are the short-term and long-term policy options?Existing research data and research results has been given a variety of factors which affect the income gap, including the urban-bias system design, economic structure, openness, resources mobility and investments in human capital, and so on. This article focuses on one aspect of income inequality-the income gap between urban and rural areas. The focal point of my analysis is to investigate the impact of educational investments on urban-rural income gap and the mechanisms of impact. The main contents of my paper are empirical analysis of that. After all, I think the meaning of these studies is to explore one long-term path of regulating urban-rural income gap in China.The article is divided into four parts. Firstly, after reviewing the relevant literatures at home and abroad about the urban-rural income gap, I brief the contents and meaning of my research. This is the introductory part and the first part. On this basis, combining endogenous growth theory and human capital theory, the author makes a theoretical analysis and econometric model of the relationship between investments in education and the urban-rural income gap. This is the second part of this article. Testing, analyzing and discussing regression models make up the third part. The fourth part of this article is divided into conclusions and policy suggestions. Research methods of my paper consist of quantitative analyses of econometric models and qualitative analyses based on economic theories. In the empirical research, the paper includes significant analyses of variables coefficients, marginal-effect analyses and elastic analyses. All of my conclusions and policy recommendations are also derived from the results of the regression function analyses and arguments of the econometric models. Overall, the conclusions of this study focused on the following aspects:Firstly, the causes of income gap between urban and rural areas and its variation are both multifaceted and comprehensive. Secondly, the additions in government expenditures on education will increase the current urban-rural income gap; meanwhile, the expansion of education does not absolutely reduce the urban-rural income inequality. Thirdly, discrepancy between urban and rural investments in human capital is an important cause of differences in the income of urban and rural residents. Lastly, in the short term, China’s income gap between urban and rural areas declines. Taking the interaction of varies factors into account, long-term changes in the trend of urban-rural income gap are uncertain. Based on different models and theories, conclusions of this problem are very different. Therefore I have not got incontestable answers.This paper also attempts to make exploratory research in the following areas:First of all, in order to explore the relationship between education and income gap between urban and rural areas, I take investments in education as a measure of human capital variables. To study from the "investment" perspective, the author split investments in education into two sections which include public education spending and individual education spending. Because increased levels of education may be spontaneous, I believe that empirical tests from the perspective of human capital investment have more explanatory power on formulation and implementation of education policies.The second is the integrated use of various methods for analyzing and discussing the convergence of income gap. These include:(1) inverted U-shaped relationship test between the level of urbanization and urban-rural income gap.(2) inverted U-shaped test of economic growth and urban-rural income gap; the inverted U-shaped relationship exists in a certain period but is not robust from the model set by the author.(3) time series analyses based on different models will draw different conclusions; besides " conditional convergence " results, you can also get " absolute convergence " result.Last is a rough analysis of the microscopic mechanism of educational investments’impact on the income gap between urban and rural districts, which lies in the third chapter focusing on the analysis of individual educational investment factors and the discussion of the fertility in the fourth chapter. Differences between urban and rural areas and their changes in fertility is an important media in the way how educational investments influence the income gap between urban and rural areas. The "absolute convergence" and "conditional convergence " of income gap between urban and rural areas basically rely on two different states of urban and rural discrepancies in fertility.Due to my limited accumulation of knowledge and research capabilities, there are many deficiencies in this article. Firstly, the main model of this paper may be missing some important explanatory variables, which I have discussed in Chapter IV. Followed by a single variable of public education spending, the regression function might be too rough and can not reveal the true impact of public educational investments on urban-rural income gap. In future studies, the author will break down public expenditures on education into different categories. Then the analysis of the theoretical basis of the author’s model might be slightly shabby, for the theoretical models mainly focus at the macro level lacking of some comparative static analyses. Finally, because of the study period, some literatures and data collection may not be comprehensive, resulting in a lack of persuasiveness in some part of my analyses.Given these deficiencies, combined with new progress of relevant research, the author intends to make some improvements in future studies, including:Firstly, I will choose simultaneous equations rather than a single equation model to examine the impact of educational investments on the urban-rural income gap. Secondly, to study the heterogeneity and spillover of education based on selected microeconomic sample data will also be the author’s choice. Based on this and human capital theories, I will discuss the microeconomic mechanism of the educational investments’impact on income disparity between urban and rural areas in detail.