The Empirical Analysis of Financial Development and Inhabitant Income Distribution

Since the 1990s, the relationship between financial development and inhabitant income distribution has been paid much attention to. But the theoretic research did not agree with the positive analysis. As a transitioning developing country, China displays an unbalanced situation both in financial development and inhabitant income distribution. The relationship between them is a realistic question which is absolutely worth being researched. In this paper, Financial Interrelations Ratio and Deposit to Loan ratio are respectively used to measure the scale and the efficiency of financial development, Urban-rural Income Gap is used to measure inhabitant income distribution. Based on the vector autoregression (VAR) model, we use ganger causality test, co-integration test and impulse response function to describe the dynamic influence of financial development to urban-rural income distribution of China from 1978. The experience research shows: Financial scale development granger causes urban-rural income gap, and there are mutual granger causality relationship between financial efficiency development and urban-rural income gap. The expansion of financial scale enlarged urban-rural income gap, and financial efficiency development reduced urban-rural income gap. In order to reduce the urban-rural income gap, powerful efforts should be done to change the status of the urban-rural unbalance of financing development, accelerate the development of rural financial market, and establish a diverse, reasonably divided and perfect competition rural financial system. In this way, the financial resources can be distributed reasonably, the rural capital out -flowing and hardness of getting loans for the rural citizens can be eased. What's more, it will highly increase the income of rural citizens. At the same time, irregular finance can be controlled, which is beneficial to the ease of the hardness of rural people financing in this way. As a whole, the urban-rural income gap can be reduced.