Internal Migration Decision and Rural Income Inequality: A Counterfactual-Based Gini Decomposition Analysis

ABSTRACT

We examine the decision between internal migration and home production for Chinese rural households and its impact on rural income distribution. By constructing counterfactual scenarios under which households are allowed to switch freely between internal migration and home production, we find that the migrant households in the studied region could have earned higher simulated income if they choose to work in local sectors, with potential sample selection bias corrected by the two-step Heckit method. Based on the counterfactual results, we conduct a Gini decomposition analysis and illustrate that rural income inequality would also be reduced if migrants choose to work locally. The findings are compatible with the fact that a nontrivial portion of the internal migration in China tends to be involuntary.

KEY WORDS:

• Gini decomposition
• local job
• remittances
• rural inequality

Acknowledgments

We are grateful to Mark Partridge, Alessandra Faggian, and Joyce Chen for their helpful comments and suggestions. Remaining errors are our own.

Funding

We thank the National Natural Science Foundation of China (41571524) and the National Social Science Foundation of China (15BGL041) for funding this research.

Notes

1. The adoption of this development strategy reflects the doctrine of learning from the Soviet Union and Stalinist Communism. Mao believed that the heavy machinery sector should always be the first priority in economic development to enhance the national defense.

2. China’s modern hukou System (Household Registration System) started in 1950. It divides residents formally into rural residents and urban residents based on their residence and biological kinship.

3. Reported in China Statistic Yearbook by the National Bureau of Statistics of China.

4. 1 mu = 667 m².

5. Reported by the National Bureau of Statistics of China.

6. The data of this program are nonpublic and can only be used by authorized personnel. The 2001 and 2004 data were released for pedagogical purposes, other data remain undisclosed and are unavailable upon request. An introduction of the program in Chinese can be found at http://www.wl.cn/895306.

7. The simulations are based on the assumption that migrant households would have the same marginal productivity in home production as nonmigrant households, and vice versa. This assumption is arguable and the simulated income of nonmigrant households could be underestimated, because in the sample, they are better endowed and more likely to be well informed and risk-resilient, which could make them earn more from migration than the actual migrant households. Symmetrically, the simulated income of migrant households could be overestimated.

8. The Chinese central government issued the “Decision on accelerating the development of the TVEs in middle and western region” in 1993 to officially confirm the benefits and encourage the development of the TVEs. See http://www.mofcom.gov.cn/article/b/bf/200207/20020700031377.shtml for the complete policy.

9. The suggested policies are concerned by the “Three Nong” problem since 2001 and are included explicitly in the 2004–2009 “No.1 Central Document” issued annually by the Chinese central government.

Additional information

Funding

We thank the National Natural Science Foundation of China (41571524) and the National Social Science Foundation of China (15BGL041) for funding this research.