The Impact of Economic Financialization on the Income Gap Between Urban and Rural Residents: Evidence from China

Economic financialization refers to misappropriating workers' earnings and enriching wealthy individuals through financial cycles. This process leads to an unequal distribution of wealth and income, particularly pronounced between urban and rural areas. This article examines the impact of economic financialization on the income gap between urban and rural residents by analyzing provincial-level data from China collected between 2003 and 2022. Utilizing the FE-SCC model and SDM, this study reveals that economic financialization increases the income gap between urban and rural residents, especially in eastern China and regions characterized by advanced economic development. The findings indicate that economic financialization significantly exacerbates the wage income gap between urban and rural residents but reduces the property income gap, which relates directly to the nature of work performed by urban and rural residents. The income disparity between these two groups correlates with each region's economic financialization level. It is influenced by spillover effects from neighboring areas, evidenced by a phenomenon known as "club convergence". Strengthening regulations on economic financialization, leveraging policy-driven financial systems, promoting regional development, and enhancing inclusive financial services could alleviate income disparity in urban-rural areas and improve the population's overall well-being.