Nonfarm employment and consumption diversification in rural China

With rapid growth and development, nonfarm employment has become an important source of livelihood for millions of rural households in China. Rural nonfarm employment is leading to an increase in income and consumption diversification, which has a direct implication on household well-being. Using Chinese General Social Survey 2017 data, this study explores the effects of nonfarm employment on Chinese rural households’ consumption diversification, measured by the Simpson index. We employ the endogenous treatment regression model and a synthesized instrumental variable to address the endogeneity of the nonfarm employment variable. Findings show that nonfarm employment increases consumption diversification significantly. We find heterogeneous effects of nonfarm employment between males and females and across geographical locations. In particular, our estimates show a higher level of consumption diversification is associated with nonfarm employment of female (relative to male) respondents and those residing in China’s eastern and western (relative to central) regions. Consumption diversification seems to monotonically increase with the increase in the household size and consumption expenditure quintiles. Further analysis reveals that nonfarm employment significantly increases household expenditures on food, culture and leisure activities, and online shopping.