A Study of the Impact of Informal Finance on the Urban-Rural Income Gap - Evidence from China

As a supplement to formal finance, informal finance has helped SMEs and rural areas overcome financing constraints. Utilizing China’s provincial data from 2004–2019, this study examines the influence of informal finance on the income disparity from a supply-side view. This Study revealed that informal finance is regionally heterogeneous and has the effect of narrowing the income gap between urban and rural areas, and manifests itself by accelerating the transfer of labor and the accumulation of physical capital, which is obvious in eastern China.