Financial Inclusion and Urban-Rural Income Inequality: Long-Run and Short-Run Relationships

Using Chinese provincial data over the period 1985-2013 and conducting the panel cointegration methods, we find that financial inclusion narrows the urban-rural income inequality in the long run, but expands it in the short run. These results can also be observed when sub-dimensional indexes of financial inclusion are tested, including financial accessibility and availability. Moreover, we find that the speed of financial networks' expansion and the education disparity between rural and urban areas are two possible reasons to explain the short-run increase.