Rural credit input, labor transfer and urban–rural income gap: evidence from China

Purpose The purpose of this study is to elaborate the theoretical mechanism of rural credit input affecting the urban–rural income gap from the perspective of labor transfer, and use a dynamic panel mediation model to test the transmission mechanism of rural credit input affecting the urban–rural income gap through labor transfer, so as to provide an empirical basis for narrowing the urban–rural income gap in China. Design/methodology/approach This paper constructs a mechanism analysis framework for rural credit input affecting the urban–rural income gap. From the perspective of resource allocation and labor transfer, the authors expound the transmission path of rural credit input to the urban–rural income gap and analyze the theoretical mechanism of rural credit input that affects the urban–rural income gap through labor transfer. Based on this, this paper uses the dynamic panel mediation model to test the effect relationship between rural credit input, labor transfer and urban–rural income gap in 31 provinces of China from 2009 to 2018. Findings In theory, increasing rural credit input can ease the financial constraints on the development of “agriculture, rural areas and farmers” and provide capital accumulation for the development of rural non-agricultural industries. The development of rural non-agricultural industries can provide more jobs for rural surplus labor, thereby increasing the labor rate of return in rural areas, and ultimately conducive to narrowing the urban–rural income gap. Further, increasing rural credit input can improve the development level of rural non-agricultural industries, thereby promoting the transfer of agricultural labor. At the same time, rural credit input based on the intermediary variable of labor transfer has a significant inhibitory effect on the urban–rural income gap. Research limitations/implications This study mainly focuses on the relationship between rural credit input, labor transfer and urban–rural income gap, so it is impossible to use micro-level data to further verify the impact of rural credit input on labor transfer. At the same time, the collection of indicators of rural credit investment in the China Financial Yearbook only started in 2009, which limited the number of samples to a certain extent. Practical implications This paper assumes that the economy is mainly composed of urban and rural economic sectors. Therefore, labor can flow freely between urban and rural areas. However, in the near future, China's rural secondary and tertiary industries may develop rapidly, especially with the in-depth implementation of rural revitalization strategy, it is very important to pay attention to the current situation of rural industrial structure and incorporate the factors such as rural industrial structure into the existing model. Social implications This study attempts to provide a new perspective and inspiration for rural credit input, the optimal allocation of labor force and narrowing the urban–rural income gap under China's rural revitalization strategy. Originality/value Based on the analysis framework of neoclassical economic theory, this paper uses the constant elasticity of substitution production function to establish an urban–rural two-sector nested model that includes credit supply variables and analyzes the mechanism of rural credit input affecting the urban–rural income gap through labor transfer.