Agricultural Insurance and the Urban-Rural Income Gap -- Based on a Dynamic Panel Model of the GMM Estimation

Existing literatures generally show that Rural Finance's development boosts economic growth and narrows urban-rural income gap, and agricultural insurance is one of most important parts in Rural Finance. Using the panel data of China from 2007 to 2011, this paper examines relationship between agricultural insurance and the urban-rural income gap by way of a dynamic panel model of the GMM estimation. The empirical results are as follows: Firstly, agricultural insurance's development significantly narrows urban-rural income gap. Secondly, agricultural insurance's development increases the income of rural residents. There is no significant correlation between the development of agricultural insurance and income of urban residents. This is the reason why agricultural insurance's development reduces urban-rural income gap. Thirdly, agricultural insurance's development correlated with economic growth, but not significantly. And finally, this paper also shows that urbanization significantly decreases the income gap, but education and openness may enlarge the income gap. Therefore, the policy implications of this paper are that we should put more efforts to support agricultural insurance for rural economic development.