Impacts of migration on rural poverty and inequality in China

with Nong Zhu.

In China, rural-to-urban migration and development of the rural non-farm sector strongly modified rural household income structure since the economic reform. In the mid 2000s, almost half of total rural income in China was from non-farm activities. Whether the decline in poverty was principally due to farm income growth or due to non-farm income growth and whether the rising share of non-farm income in total rural household income was the leading cause of the sharp increase in rural inequality have been key issues of debate. Some researchers argue that rural to urban migration has negative impact in rural income inequality and poverty. Three reasons are often emphasized (i) distribution of non-farm income is more unequal than that of farm income; (ii) richer households have higher chances to participate in migration and local non-farm activities; and (iii) households with higher income are characterized by a higher participation rate in non-farm activities and a higher share of non-farm income in total income.

However, the fact that rural households with higher income are usually the ones who run a business does not reach the conclusions that households with higher income are more likely to participate in migration compared with those with lower income and that development of non-farm sector will widen income gaps.

Using data from a survey of rural households in Hubei province in China, in a recent paper, we examined the impact of rural-to-urban migration on rural poverty and inequality. Taking into account of household non-observable characteristics, we consider migration income as a “potential substitute” for household earnings rather than “exogenous transfer”, and simulate the counterfactual of how rural household income, rural poverty and rural inequality would have been in the absence of migration. Poor and rich households may both be inclined to participate in non-farm activities for different reasons: the former have a stronger motivation whereas the latter have greater capability. Due to financial constraints, households with lower income are more likely to participle in migration and operate non-farm activities characterized by a higher labor-capital ratio. Our results show that by providing alternatives to households with lower marginal labor productivity in agriculture, migration leads to an increase in rural income.

It offers support for the hypothesis that migration tends to have egalitarian effects on rural income for three reasons: (i) migration is selective across households, good farmers remain in local agricultural production; (ii) migration largely increases rural household income and reduces poverty; (iii) migration also reduces rural inequality as it benefits poorer households disproportionately.