Empirical Study of the Impact of China’s Rural Financial Development on the Urban-rural Income Gap

Based on related data from 1983 to 2009,the paper utilizes the VAR model to analyze how China’s rural financial development affects the urban-rural income gap.The empirical study results show that there is a long-run equilibrium relationship between China’s rural financial development and the urban-rural income gap,and the development of China’s rural finance is the Granger reason of the urban-rural income gap.The result of VAR model and impulse response function analyses shows that China’s rural financial development leads to the expansion of the urban-rural income gap,which is the outflow of rural capital and inadequate development of non-formal finance.We should curb the outflow of the rural funds and increase non-formal financial development to develop China’s rural finance and narrow the urban-rural income gap.