The Effect of Rural Financial Development on the Urban-Rural Income Gap—Data Analysis Based on Hubei Province

Abstract

Based on the data of Hubei Province from 1990 to 2015, we researched the effect of rural financial development in Hubei province on the income gap between urban and rural areas by using vector autoregressive model (VAR). The study found that the development of rural financial scale expanded the urban-rural income gap and rural financial efficiency could reduce the income gap from the long-term trend. The reason was that in the process of urbanization and industrialization, a large number of agricultural capital outflows aggravated the income gap between urban and rural areas. Therefore, we should speed up the supply-side reform of rural finance, establish an inclusive rural financial system, and realize the process of rural financial development from “quantitative change” to “qualitative change”, so as to narrow the income gap between urban and rural areas.