Spatial Econometrical Empirical Analysis Of The Relationship Between Financial Development And Income Distribution In China

Finance is the core of the modern market economy, financial development, economic growth and residents’living standards are closely linked. However, the income gap between urban and rural areas in China is growing along with the economic and financial development. The research about the relationship of financial development and income gap has become a hot issue in academic field. From the new perspective of financial development, the study will help us to realize the formation of income inequality, and formulate macroeconomic policies to raise the residents’living standards. This article constructs a interactive transmission system between financial development and income gap from two directions, and introduces the spatial econometric research methods on Chinese provincial panel data modeling and analysis, and provides theoretical basis for policy makers.In details, this paper through the analysis of financial function, and the social impact of income gap, constructs a interactive transmission system between financial development and income gap from two directions. Secondly, analyses the trend of China’s financial development and income gap, regional difference, etc. Then using spatial econometric method to analysis the relationship between financial development and income gap in China, and Moran’s I index indicates spatial dependence in China’s financial development and income gap. Selects the provincial panel data to establish spatial models, including least squares estimation model, spatial autoregressive model and spatial error model. Then adds fixed effects to the spatial models and finds out that the most appropriate model is double fixed model of time and space of spatial autoregressive model. It can be concluded that economic and financial development can reduce the income gap, so does the urbanization process. Finally puts forward relevant policy suggestions to promote financial development and narrow the income gap to achieve win-win situation.