The Impact Of Remittances On Rural Poverty And Inequality In China

Abstract: Large numbers of agricultural labor moved from the countryside to cities after the economic reforms in China. Migration and remittances play an important role in transforming the structure of rural household income. This paper examines the impact of rural-to-urban migration on rural poverty and inequality in the case of Hubei province using the data of a 2002 household survey. Since remittances are a potential substitute for farm income, the paper presents counterfactual scenarios of what rural income, poverty, and inequality would have been in the absence of migration. The results show that, by providing alternatives to households with lower marginal labor productivity in agriculture, migration leads to an increase in rural income. In contrast to many studies that suggest the increasing share of non-farm income in total income widens inequality, this paper offers support for the hypothesis that migration tends to have egalitarian effects on rural income for three reasons: (i) migration is rational self-selection - farmers with higher agricultural productivities choose to remain in local agricultural production while those with higher expected return in urban non-farm sectors migrate; (ii) poorer households facing binding constraints of land shortage are more likely to migrate; and (iii) the poorest poor benefit disproportionately from remittances.

Large numbers of agricultural labor moved from the countryside to cities after the economic reforms in China. Migration and remittances play an important role in transforming the structure of rural household income. This paper examines the impact of rural-to-urban migration on rural poverty and inequality in the case of Hubei province using the data of a 2002 household survey. Since remittances are a potential substitute for farm income, the paper presents counterfactual scenarios of what rural income, poverty, and inequality would have been in the absence of migration. The results show that, by providing alternatives to households with lower marginal labor productivity in agriculture, migration leads to an increase in rural income. In contrast to many studies that suggest the increasing share of non-farm income in total income widens inequality, this paper offers support for the hypothesis that migration tends to have egalitarian effects on rural income for three reasons: (i) migration is rational self-selection - farmers with higher agricultural productivities choose to remain in local agricultural production while those with higher expected return in urban non-farm sectors migrate; (ii) poorer households facing binding constraints of land shortage are more likely to migrate; and (iii) the poorest poor benefit disproportionately from remittances.

Remittances are an integral feature of the internal migration process in China. In order to understand the contributions remittances can make to development and the ways in which potential benefits may be enhanced, there are several questions that need to be answered. For instance, how are such funds distributed within and across regions? What channels are used to send money to the rural areas? Who are the people in the rural community receiving the money? Why do some migrants fail to remit? How are remittances spent? And, what are the policy implications of how the money is distributed, remitted and used? This report draws on a rich body of English and Chinese literature to find answers to these questions.

Study based on a household survey conducted by the International Food Policy Research Institute (IFPRI) between September 1986 and May 1987 in three villages in the Minya governate.

China has achieved remarkable progress in poverty alleviation since the start of its reform process, with rural poverty having dropped from 30.7 per cent in 1978 to 2.6 per cent in 2005. Rural-urban labour migration on an unprecedented scale played a vital role in rural income growth, poverty reduction and economic development. Empirical evidence shows that while the vast rural to urban migration does not significantly increase urban income poverty, labour market discrimination and social exclusion expose rural migrants to many risks and vulnerabilities in the cities, where the poor are becoming increasingly marginalised. Capacity building for the poor, the adoption of an integrated labour market system that also takes account of migrants, and the creation a of rural social security system are the three important poverty alleviation options promoted by the government. Although migration in China has unique institutional characteristics owing to the existence of the hukou system (Household Registration System), the experience of China has important lessons for our understanding of the impact of migration on development and poverty reduction.

China has achieved remarkable progress in poverty alleviation since the start of its reforms. Rural-urban labour migration on an unprecedented scale played a vital role in rural income growth, poverty reduction and economic development. The present publication argues that although migration in China has unique institutional characteristics, the experiences and lessons to be drawn from considering migration as a development approach have important implications for the shaping of appropriate developmental policies.

"While the incidence of extreme poverty in China fell dramatically over 1980-2001, progress was uneven over time and across provinces. Rural areas accounted for the bulk of the gains to the poor, though migration to urban areas helped. The pattern of growth mattered. Rural economic growth was far more important to national poverty reduction than urban economic growth. Agriculture played a far more important role than the secondary or tertiary sources of GDP. Rising inequality within the rural sector greatly slowed poverty reduction. Provinces starting with relatively high inequality saw slower progress against poverty, due both to lower growth and a lower growth elasticity of poverty reduction. Taxation of farmers and inflation hurt the poor. External trade had little short-term impact. This paper a product of the Poverty Team, Development Research Group is part of a larger effort in the group to understand the causes of country success in poverty reduction"--World Bank web site.

While the incidence of extreme poverty in China fell dramatically over 1980-2001, progress was uneven over time and across provinces. Rural areas accounted for the bulk of the gains to the poor, though migration to urban areas helped. The pattern of growth mattered. Rural economic growth was far more important to national poverty reduction than urban economic growth. Agriculture played a far more important role than the secondary or tertiary sources of gross domestic product (GDP). Rising inequality within the rural sector greatly slowed poverty reduction. Provinces starting with relatively high inequality saw slower progress against poverty, due both to lower growth and a lower growth elasticity of poverty reduction. Taxation of farmers and inflation hurt the poor. External trade had little short-term impact.