A Study on the Factors Influencing the Income Gap between Urban and Rural Areas Based on State-space Model

The increasingly widening income gap between urban and rural areas is affected by many factors. Using the stepwise regression analysis, we find that urbanization level, socio-economic development, education level, financial development scale and financial development efficiency have the greatest impact on the income gap between urban and rural areas. By cointegration test, it is found that there is a long-term equilibrium relationship between these five variables and the income gap between urban and rural areas. We build the state-space model to research the dynamic impact of these factors on the income gap between urban and rural areas. The results show that by improving the level of urbanization, we can effectively narrow the income gap between urban and rural areas, while socio-economic development, the improvement of education level, expansion of financial development scale and financial development efficiency all significantly expand the income gap between urban and rural areas