An Empirical Study on the Relationship between Financial Development, Economic Growth and Income Disparity in China

Urban and rural development and reduce urban-rural income gap is a hot topic of economic research, interaction between financial development, economic growth and income inequality mechanism of great significance for the study of the problem. In this paper, by constructing the vector error correction model(VEC), and makes an empirical study on the relationship between financial development, economic growth and income gap in China from 1990 to 2016. The study found that financial development, economic growth and income gap have the long-term equilibrium relationship; financial development will expand the income gap, and financial development is resulted widening income gap of Granger reasons, the expansion of the income gap to a certain extent, inhibited the financial development, however, this inhibition is lagging; economic growth has widened the income gap, and the income gap is the reason for the economic growth of Granger, Indicating that the income gap contributed to economic growth; economic growth in the early inhibition of financial development, but in the long run, economic growth to promote financial development, and economic growth is the financial development of Granger reasons.