Urban--rural income disparities and development in a panel data set of China for the period from 1978 to 2006

We examine the relationship between urban--rural income disparities and development in a panel data set of 30 provinces and regional subsets of China during the period of 1978 to 2006. There is an inverted-U relationship between the urban--rural income gap and per capita Gross Domestic Product (GDP). Financial development by scale widens the urban--rural income gap in all regional samples, while financial sector efficiency and rural bank loans may reduce it in some regions. Government spending raises the urban--rural income gap as well. We also examine the effects of urbanization, openness and education.