Urbanization, inclusive finance and urban-rural income gap

ABSTRACT

By exploring the economic data in 31 Chinese provinces during 2006–2018, this paper discovers that: (1) inclusive finance narrows the urban-rural income gap mainly by improving financial quality; (2) urbanization outweighs inclusive finance in reducing the urban-rural income gap; (3) urbanization and inclusive finance (exclusive of financial quality) weaken each other in bridging the urban-rural income gap. The findings are robust to the endogeneity problem.

KEYWORDS:

• Urbanization
• inclusive finance
• urban-rural income gap
• interaction mechanism
• financial quality

JEL CLASSIFICATION:

• O15
• O18
• J61
• R11
• O53
• C33

Acknowledgments

Chaohua He acknowledges the financial support from “the Fundamental Research Funds for the Central Universities” in UIBE (18YB12).

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Lagged urbanization rate is used for easing the concern that possible endogeneity may exist between $GAP$ and $UR$.

² Fixed effects model is selected as per the LR, F, and Hausman test statistics (p-value = 0.000 for all).

³ $-0.266=(-0.249)\times ({\sigma }_{IFI}/{\sigma }_{TI})$, $-0.627=(-0.566)\times ({\sigma }_{UR}/{\sigma }_{TI})$, $-0.034=(-0.249)\times {\sigma }_{IFI}$, $-0.081=(-0.566)\times {\sigma }_{UR}$, where ${\sigma }_{IFI}=0.138,{\sigma }_{TI}=0.129$ and ${\sigma }_{UR}=0.143$ in terms of the descriptive statistics.

Additional information

Funding

This work was supported by the 'The Fundamental Research Funds for the Central Universities’ in UIBE [18YB12].