Does the Rising Agricultural Prices Narrow the Urban-rural Income Gap?

Based on the Chinese provincial panel data during the period 2003-2010, we conduct empirical test on whether China's rapidly rising prices of agricultural products narrow the urban-rural income gap. The empirical results indicate that the effects of rising agricultural prices on the urban-rural income gap show U shape: within some range of rise, the rising agricultural prices are conducive to narrowing the urban-rural income gap; when the rise is too sharp, it will widen the urban-rural income gap. In the multiple factors fueling the uptick in agricultural prices, rising labor costs in rural areas is an important factor, and the rising agricultural prices driven by this factor can significantly reduce the urban-rural income gap. Therefore, when the government regulates agricultural prices, there is a need to act according to the specific factors, and it should maintain certain "tolerance" for the modest rise in the agricultural prices that contributes to the increase in farmers' income, to avoid over-regulation at the expense of urban and rural residents' income convergence.