Co-integration Analysis of Urban Residents' Income, Agricultural Financial Expenditure and Farmers’ Income

Based on the previous research result, ADF test method， Johansen test method and Error Correction Model are introduced. According to the relevant data in Guangdong Province in the years 1985-2006, co-integration analysis, Error Correction Model, impulse response function and variance decomposition technology are used to study the dynamic impacts of urban residents’ income and agricultural financial expenditure on rural residents’ income in Guangdong Province. Result shows that although urban residents’ income has temporary negative effects on rural residents’ income in Guangdong Province，Its long-term, stable positive effect is more important is. Increase of urban residents’ income can promote the income growth of rural residents. Effect of agricultural financial expenditure on rural residents’ income is relatively unstable in the short term; but in the long term, it has steady and weak positive effect on rural residents’ income. Rural residents’ income has relatively great impact on its own, indicating that when rural residents’ income reaches a certain level, it can form a mechanism of self-promotion in order to promote the continued increase in the rural residents’ income.