Does financial development increase rural-urban income inequality? Cointegration analysis in the case of Indian economy

The aim of paper is to investigate the affect of financial development on rural-urban income inequality in India over the period of 1960-2008. In doing so, ARDL bounds testing approach was applied to examine cointegration and Ng-Perron unit root test to check the order of integration of the variables. The results confirmed the existence of cointegration showing long run relationship among the test variables. Furthermore, empirical evidence indicated that financial development, economic growth and consumer prices increase gap between rural-urban earnings. The present study has opened new sights for policy making authorities to implement appropriate economic policies to reduce the rural-urban income inequality in India.