Mechanism and empirical evidence on new-type urbanization to narrow the urban–rural income gap: Evidence from China’s provincial data

Abstract

The main component of China’s income gap is the urban–rural income gap, which is largely affected by urbanization. It is worth studying how new-type urbanization affects the income gap between urban and rural areas. Research mostly focuses on the urbanization rate as the core explanatory variable to explain the impact using one or two factors. This paper analyzes the mechanism of the effect using a comprehensive number of factors, with the quality of new-type urbanization development as the core explanatory variable. In terms of theoretical research, we believe that new-type urbanization affects the urban–rural income gap by promoting the transfer of labor, changing industrial structure, and policy tendency. Using both static and dynamic empirical analyses, we test the impact of new-type urbanization on the urban–rural income gap based on China’s provincial data. We find that new-type urbanization is conducive to narrowing the income gap between urban and rural areas. The transfer of labor significantly reduces the urban–rural income gap. However, the upgrading of industrial structure will enlarge the gap. The impact of China’s policy orientation is negligible. Policy should focus on promoting urbanization and improving the marginal rate of return of agriculture, improve the level of human capital, reverse the mismatch between employment structure and industrial structure, increase support for rural areas, and make substantial progress in promoting common prosperity.