Urbanization and the Urban–Rural Income Gap in China: A Continuous Wavelet Coherency Analysis

Abstract

This study applies wavelet analysis to examine the relationship between the urbanization and the urban–rural income gap in 31 provinces in China over the period 1978–2019. We find three patterns of causality between urbanization and the urban–rural income gap. Empirical results show that urbanization does Granger-cause an urban–rural income gap, the urban–rural income gap does Granger-cause urbanization, and there exists a two-way causality between the urban–rural income gap and urbanization. Furthermore, these relationships mainly exist at high frequencies (short term). The results obtained by considering the resident population are more significant than those by the registered population. These results could help local governments develop fair policies for urban and rural income distribution in the process of urbanization of different provinces, promoting the coordinated development between urban and rural areas.