The Dynamic Effects of Urban–Rural Income Inequality on Sustainable Economic Growth under Urbanization and Monetary Policy in China

Junli Cheng and Feng Lin
Additional contact information
Junli Cheng: Chinese Finance Research Institute, Southwestern University of Finance and Economics, Chengdu 611130, China
Feng Lin: Chinese Finance Research Institute, Southwestern University of Finance and Economics, Chengdu 611130, China

Sustainability, 2022, vol. 14, issue 11, 1-23

Abstract: Income inequality in China has become increasingly serious since the beginning of the economic reform period in the 1970s, with urban–rural income inequality playing a large role. Urbanization policy and monetary policy are currently important economic policy tools for the Chinese government. In order to investigate the influence of inequality on the economy and to provide recommendations for ensuring the sustainability of growth, we study the effect of urban–rural income inequality on economic growth in the context of urbanization and monetary policy in China between 2002 and 2021. Using a flexible time-varying parametric structural vector auto-regression (TVP-VAR) model and a robust Markov chain Monte Carlo (MCMC) algorithm, our empirical results show that the effect is time-varying, with inequality promoting growth in the early years but affecting it adversely at later stages. Currently, urbanization mitigates inequality and promotes growth simultaneously, while easy monetary policy worsens inequality and affects growth adversely in the long term. We suggest that the authorities need to consider the implementation of policy rebalancing to ensure that the sustainability of economic development is not jeopardized because of worsening income disparity. Proactive urbanization policy and prudent monetary policy are viable rebalancing options.

Keywords: income inequality; economic growth; urbanization; monetary policy; TVP-VAR model; policy rebalancing (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.mdpi.com/2071-1050/14/11/6896/pdf (application/pdf)
https://www.mdpi.com/2071-1050/14/11/6896/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:14:y:2022:i:11:p:6896-:d:832067

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().