The Distortion Effect of China’s Urbanization Development on Urban and Rural Residents’ Consumption^[1]

Hongqian Qi Yan Liu Xuwen Xi^[2]

Abstract: Narrowing the income gap between urban and rural areas and expanding rural consumption are important goals of urbanization. During the past 30 years, China has achieved rapid urbanization development with the widening urban-rural consumption gap. This article uses China’s provincial panel data from 2002 to 2014, employs PVAR model empirically, studies the “distortion effect” of urbanization development to the synchronous growth of urban and rural consumption, finds that China’s urbanization development with “city priority” distorted the synchronous growth of urban and rural consumption, through rising urban residents’ income level, strengthening rural resident’s precautionary savings motive and leading the welfare loss of agricultural transfer population. Here are the findings of this article: the key of avoiding “distortion effect” is to realize the optimal city size and reasonable pace of urbanization, radiating from city to rural areas with the help of the information network, strengthening the balanced urbanization development and civilization as the basic strategy of urbanization in the future.

Keywords: Urbanization; Urban-rural Gap; Consumption; PVAR Model