Where did all the remittances go? Understanding the impact of remittances on consumption patterns in rural China

Abstract

We focus on the impact of migrants’ remittances on consumption patterns in China. Using a large homogenous sample of rural households surveyed in 2001 and 2004, we find that remittances are spent on nonhousing consumption expenditures at the margin, virtually dollar-for-dollar, when we instrument remittances and local employed earnings using proxies of social networks. Our findings are robust to intra-household division of labour and to fixed-effect for the county in which the respondents are registered. These results imply that rural households largely take remittances as permanent income and are consistent with the prevalence of circular and repeat migration in China.

Keywords:

• rural–urban migration
• remittances
• consumption patterns
• fixed-effect instrumental-variables estimation
• China

JEL Classification:

• D12
• D13
• J61
• R23

Acknowledgement

We are grateful to the British Academy for funding this research. The data used were made available through a research collaboration project between the University of Kent and the National Bureau of Statistics of China. We also thank participants of seminars at the University of Kent, Keele University, the Institute of Development Studies, the European Society for Population Economics 2008 Conference at the University College London and the ESRC/CASS workshop on Migration and Labour Markets at the University of St. Andrews for comments. In particular, we thank Jagjit Chadha, Sarah Cook, Alfonso Miranda, John Peirson, Robert A Pollak and Ian Walker for very helpful suggestions. The views expressed in this article are those of the authors and should not be interpreted as those of the institutions with which the authors are affiliated.

Notes

¹ The proportion of urban residents in China increased from 17.4% in 1978 to 41.8% in 2005, while the share of the primary sector of industry dropped from 27.9% to 12.6% over the same period (NBS, 2006).

² These correspond to the three labour market options: migration for work away from home, local off-farm employment and family farming, faced by rural households in China today (see Knight and Song (2005), chap. 8).

³ The share of households with zero expenditure is highest for clothing, at 1.3%, of the sample of nuclear families with dependent children.

⁴ This implies that households who have migrated as a whole are not included in the survey. NBS (2005, p. 75) documents that out of the 118.23 million rural–urban migrants, only 21% migrated with all their family members according to the 2004 Rural Household Survey.

⁵ Following the official definition, we base our calculation of rural workforce on the sample of males aged 18–50 and females aged 18–45 inclusive.

⁶ Ioannides and Loury (2004) offer an excellent survey of the literature on job search networks.

⁷ Compared to other household types, this group is much less likely to settle in urban areas because of the lack of access to the state educational system in cities and towns.

⁸ Twelve point six per cent of households with migrants report zero remittances, while 19.3% of households with no migrant workers in the survey year report positive remittances.

⁹ The remainder can be classified as only wife migrating (7.4%), both husband and wife migrating (11.8%) and any migration pattern involving adult children (17.9%).