An Empirical Study of the Effect of Financial Development on the Urban-Rural Residents Income Gap in China

Finance controls the pulse of the whole economy. This paper combs the foreign and domestic research first, and then selects provincial panel data from 1978 to 2013 in China's 20 provinces, municipalities and autonomous regions to establish a panel data fixed effects model to analyze financial impact on the urban-rural income gap. The dependent variable use Theil index to measure the urban-rural income gap, and the independent variables are the financial scale and financial efficiency as well as other control variables. The result shows that the relationship between China's financial scale and urban-rural income gap is in line with the inverted "U" hypothesis, and improving the financial efficiency has a significant impact on narrowing the income gap.