Agricultural inputs, urbanization, and urban-rural income disparity: Evidence from China

Income inequality is undoubtedly a potential economic and social risk for any country in the world. For China, the improvement in agricultural production capacity and the steady progress of urbanization are fundamental guarantees to mitigate unbalanced urban-rural development and alleviate urban-rural conflict. However, previous studies have paid little attention to the effects of agricultural inputs such as chemical fertilizers on urban-rural income disparity. Based on a data set of 30 provincial-level regions in China over 1997-2015, we use the system generalized method of moments to investigate the impacts of agricultural production inputs and urbanization on urban-rural income disparity. The results show that increasing urbanization has a significant effect on mitigating urban-rural income disparity. The intensity of chemical fertilizer application also has a significant impact on the disparity, but the impact depends on the level of urbanization. For the provinces with relatively low levels of urbanization, an increase in the intensity of chemical fertilizer application can moderate the disparity, while a decline in the intensity of chemical fertilizer application can narrow the disparity in more urbanized provinces. The threshold levels of urbanization present a time-varying characteristic; however, the threshold effects are significant over the entire sample period. Therefore, during the process of further urbanization in China, it is necessary and urgent to appropriately adjust the pattern of chemical fertilizer application and thus reduce the over-dependence on chemical fertilizers in agricultural production.