How does circulation industry agglomeration help close the income gap between urban and rural areas? — Evidence from China

The circulation industry is a fundamental and leading enterprise in the national economy that aims to close the income gap between urban and rural areas. We employ the fixed effects model, moderating effects model, threshold effects model, and dynamic spatial Durbin model, using panel data from 30 Chinese provinces (cities) from 2011 to 2021 to investigate the impact of circulation industry agglomeration (Ciia) on the urban-rural income gap (Urgap) at the theoretical and practical levels. The study shows that: (1) Ciia can greatly lower the Urgap, and considerable regional, period, and industry disparities exist. (2) Mechanism tests demonstrate that Ciia can lower the Urgap by addressing resource mismatch and digital economy (Digi) can amplify the inhibitory effect of Ciia on the Urgap. (3) Further study reveals that depending on the degree of Ciia, the impact on the Urgap is characterized by a nonlinear declining marginal effect. Furthermore, there is a geographical time lag in the impact of Ciia on the Urgap, with the short-term effect outweighing the long-term effect. The above findings provide useful suggestions for the Chinese government to narrow the Urgap. Therefore, the government should actively promote Ciia to give full play to its strong income distribution effect and promote the digital development of the circulation industry to narrow the Urgap and help realize common prosperity.