An Empirical Analysis of Shanxi's Financial Development and Urban-rural Income Gap

The relationship between financial development and the income gap between urban and rural areas has always been a hot topic in the economic and financial field. Discussing the relationship between the two is not only of theoretical significance for the study of macro issues, but also can provide certain policy enlightenment for narrowing the gap between urban and rural areas and increasing farmers' income. Based on the data of Shanxi Province from 1987 to 2018, the VAR model was constructed using EViews software. Based on the co-integration test of the financial development level and urban-rural income gap in Shanxi Province, the dynamic correlation between these variables was further studied through impulse response analysis. The results show that, in the long run, the scale of financial development will aggravate the inequality of urban and rural income, and improving the efficiency of financial development will help narrow the gap. The mechanism of financial development on the urban-rural gap is manifested in both direct and indirect aspects: on the one hand, the urban tendency of financial resources will cause the urban-rural income gap to increase as the degree of financial development increases; on the other hand, the level of financial development may be affected. The intermediary variable of urbanization has an indirect effect on the urban-rural income gap. Therefore, while increasing policy support for rural finance, we must also pay attention to the acceleration of urbanization by financial development, and form a good urban-rural coordinated development mechanism.