Grey Incidence Relation Analysis and Granger Causality Tests of the Income Level and Economic Growth – Case Study on Gansu Province, China

Abstract

In order to keep the economic growing, the Chinese government released series of public policies with regard to stimulate consumption and expand domestic demand. This paper, based on the series data of GDP, Per Capita Annual Disposable Income of Urban Households (PCAD), and Per Capita Annual Net Income of Rural House-holds (PCAN) of Gansu province from 1978 to 2007, analyzed the relationship and causality of the PCAD and PCAN to GDP by using the methodologies called Grey Incidence Relation and Granger Causality Tests. The outcomes show that: the incidences relation of PCAD and PCAN to GDP are prominent, and the trend of the prominent concerning PCAD to GDP is climbing; the PCAD and PCAN are the Granger causality to GDP, which means the GDP could increase 0.7337% unit due to the 1% unit increase of PCAN. Instead, the GDP only could increase 0.4817 % unit due to the 1% unit increase of PCAD. The conclusion indicates that to improve the net income of rural households is a priority selection to stimulate the economic growth, and the governments should rethink the role of the farmers and the agriculture issue.