Empirical Research on the Relations between farmers’ income increase and economic development in Henan Province

According to data of per capita net income of rural households and the per capita regional gross output from 1978 to 2008 provided by the Henan Statistical Yearbook , we know that both of the time series obey the unit root process, so they belong to non-stationary time series. The results of the Engle-Granger two-stage estimation method show that the two terms have long-term stable integration equilibrium relations. The results of Granger Causality Test show that there is only the one way Granger Causality relation from farmers’ income increase to economic growth. Connecting with the reality of Henan Province, the possible reasons are analyzed. The population of rural residents is huge and the income level of the rural residents are low, and the marginal consumption tendency is bigger than urban and township residents, so the increase of farmers’ income will promote economic growth. Notably, the income increase of farmers is even more helpful to expand domestic demand. Since 1978, the consumption level and structure of farmers in Henan Province is increasing gradually and the role played by of farmers’ income increase in stimulating economic growth is increasing. Besides, the urban-rural double system which serves for economic development strategy is the historic root for the expanding gap of urban and rural income. In addition, the economic policy which gives priority to cities is the system root for the expanding gap of rural and urban income.