The impact of financial development and digital technology development on urban-rural income inequality in selected Asian countries

Boey, Jia Xian and Cheng, En Qi (2026) The impact of financial development and digital technology development on urban-rural income inequality in selected Asian countries. Final Year Project, UTAR.

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Abstract

This study investigates how financial development and digital technology development can impact urban-rural income inequality in Asian countries, namely China, India, Malaysia, Japan, and South Korea, covering the period from 1994 to 2020. The main objective is to examine whether these factors contribute significantly to narrowing or widening the income gap between rural and urban areas. To detect stationarity in data, panel unit root tests, including Levin, Lin & Chu (LLC), Im, Pesaran and Shin, Augmented Dickey-Fuller (ADF), and Phillips-Perron (PP), are used. Furthermore, cointegration tests, including Pedroni and Kao, are used to examine the long-run relationship among the variables. The Panel Autoregressive Distributed Lag (ARDL) is used to analyze both short-run and long-run relationships between variables in panel data, even when the variables have different levels of stationarity (I(0) or I(1)). This study finds that both financial development and digital technology development have a statistically significant relationship with rural–urban income inequality. Additionally, findings show that financial development leads to widening of the rural–urban income inequality, while digital technology development helps to narrow the rural–urban income gap in Asian countries. The research recommends that policymakers and governments should reduce rural–urban income inequality by improving rural financial access (microfinance, digital banking) and expanding digital infrastructure (internet, mobile networks, affordable devices). They should also promote rural job creation, reduce urban resource concentration, and support trade policies that improve rural market access and export opportunities.

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