From the perspective of economic growth and urbanization, this paper proposes several hypotheses on how financial structure affects urban-rural income gap combining with the stylized facts of Chinese economy, and then uses a panel data of 29 provinces over 1996-2015 to conduct empirical analysis. Theoretical analysis shows that owing to the distinct availability of urban and rural residents for financial services, financial structure has a distinct impact on their income disparity. Meanwhile, through the function of credit allocation, financial structure plays important roles in the processes of economic growth and urbanization, and then has indirect effects. The results indicate that increasing the ratio of direct financing has a direct impact on shrinking the urban-rural income gap, and has an indirect impact
through economic growth and urbanization. More importantly, the intermediary effect of urbanization is stronger than that of economic growth. Therefore, releasing the controls on financial markets helps shrink the urban-rural income gap in China.
Keywords: financial structure, urban-rural income gap, economic growth, urbanization
China Finance and Economic Review
Volume 7 Number 2 Summer 2018.P107