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Financial development, technological innovation and urban-rural income gap: Time series evidence from China

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  • Li-Min Wang
  • Xiang-Li Wu
  • Nan-Chen Chu

Abstract

The main purpose of the paper is to investigate the relationship between technological innovation and income inequality for China based on the financial Kuznets curve (FKC) hypothesis. The study uses time-series data from 1985 to 2019. We employ the Johansen cointegration, ARDL model and VECM Granger causality techniques to analyze the links between the variables. We also use the DOLS, FMOLS and CCR mechanisms to estimate the long-run parameters. The paper finds that the FKC is valid for China’s economy in the long run. Technological innovation positively affects the urban-rural income gap, while there is an inverted-U shaped between financial development and the urban-rural income gap. The relationship between financial development and the urban-rural income gap is bi-directional causality. Technological innovation and the urban-rural income gap cause each other. Empirical results suggest a twofold policy meaning: i) to further the financial system and ii) to eliminate the adverse impacts of technological innovations on income distribution.

Suggested Citation

  • Li-Min Wang & Xiang-Li Wu & Nan-Chen Chu, 2023. "Financial development, technological innovation and urban-rural income gap: Time series evidence from China," PLOS ONE, Public Library of Science, vol. 18(2), pages 1-18, February.
    • Handle: RePEc:plo:pone00:0279246
    DOI: 10.1371/journal.pone.0279246
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    4. Clarke, George & Xu, Lixin Colin & Zou, Heng-fu, 2003. "Finance and income inequality : test of alternative theories," Policy Research Working Paper Series 2984, The World Bank.
    5. Greenwood, Jeremy & Jovanovic, Boyan, 1990. "Financial Development, Growth, and the Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 1076-1107, October.
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