Urban Bias, Rural-Urban Income Gap and Agricultural Growth: the Resource-Diverting Effect of Rural-Urban Income Gap in China

Urban bias has long been China’s dominant economic policy. The persistent urban bias leads to a severe rural-urban income gap and diverts physical as well as an effect of diverting the rural resource out of agricultural sector, and thus is detrimental to agricultural growth. This paper uses China’s provincial panel data from 1978 to 2007 to investigate the diverting effects of the rural-urban income gap on agricultural growth. The empirical results suggest that the persistent rural-urban income gap caused by urban bias has produced strong current, but smaller lagged resource-diverting effects on agriculture. The further study shows that the diverting effect is decreasing over time and it is larger in the middle provinces than other provinces. The time and region patterns are confirmed to be a “U shape” relationship between the rural-urban income gap and agricultural growth.