ECONOMIC REFORM AND INCOME GAP BETWEEN URBAN AND RURAL AREAS IN CHINA

Yunge Du
Weiqiu Yu
University of New Brunswick, Canada

ABSTRACT

Since economic reform began in 1978, China’s economy has grown rapidly resulting in a
higher standard of living for both urban and rural residents. However, the income gap between
urban and rural residents continues to widen. Using time series data from 1978 to 2019 and
cointegration analysis, we find that (i) in the long run China’s Dual Economic Structure,
Dependence on Foreign Trade, and Difference Between Urban and Rural Consumption Levels
expand the relative income gap while the Urbanization Rate and Proportion of Agriculture in GDP
reduce the relative income gap between urban and rural residents; and (ii) in the short run, only the
Dual Economic Structure and Proportion of Agriculture in GDP had a significant impact on the
urban-rural relative income gap.

Keywords: Income gap, time series analysis, cointegration, China