How Does Urbanization Affect Balanced Growth in Urban and Rural Areas of China?

The relationship between urban and rural development in the process of urbanization is closely related to social stability. This paper presents a model to analyze the development of urban and rural economies in two different states, i.e. an isolated state and an interactive state. The analysis finds that urbanization promotes balanced urban and rural growth by mobilizing knowledge, labor and capital, while the government’s investment bias and price intervention intensify imbalance between urban and rural development in the isolated state and offset the promotion function of urbanization. Some empirical analyses using provincial-level panel data for China have verified the above conclusion. Therefore, the government should pay more attention to balancing its investment and reducing its price intervention in product markets as urbanization continues to be promoted.