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Internal Migration and Income Inequality in China: Evidence from Village Panel Data

  • Ha, Wei
  • Yi, Junjian
  • Zhang, Junsen

Existing studies on the impact of migration on income inequality at sending communities suffer from severe methodology defects and data limitations. This paper analyzes the impact of rural-to-urban migration on inequality using a newly constructed panel dataset for around 100 villages over a ten-year period from 1997 to 2006 in China. To our best knowledge, this is the first paper that examines the dynamic aspects of migration and income inequality employing a dynamic panel data analysis. Unlike earlier studies focusing exclusively on remittances, our data include the total labor earnings of migrants in destination areas. Furthermore, we look at the gender dimension of the impact of migration on wage inequality within the sending communities. Since income inequality is time-persisting, we use a system GMM framework to control for the lagged income inequality in estimating the effect of emigration on income inequality in the sending villages. At the same time, contemporary emigration is validly instrumented in the GMM framework because of the unobserved time-varying community shock that correlates with emigration and income inequality, as well as with the potential reverse causality from income inequality to emigration. We found a Kuznets (inverse U-shaped) pattern between migration and income inequality in the sending communities. Specifically, contemporary emigration increases income inequality, while lagged emigration has strong income inequality-reducing effect in the sending villages. A 50-percent increase in the lagged emigration rate translates into one-sixth to one-seventh standard deviation reduction in inequality. Contemporary emigration has slightly smaller effects in raising the income inequality within villages. These effects are robust to the different specifications and different measures of inequality. More interestingly, the estimated relationship between emigration and the gender wage gap also has an inverse U-shaped pattern. Emigration tends to increase the gender wage gap initially, and then tends to decrease it in the sending villages.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 16896.

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Date of creation: 01 Jun 2009
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Handle: RePEc:pra:mprapa:16896
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  1. Stark, Oded & Taylor, J Edward, 1991. "Migration Incentives, Migration Types: The Role of Relative Deprivation," Economic Journal, Royal Economic Society, vol. 101(408), pages 1163-78, September.
  2. Zhu, Nong & Luo, Xubei, 2008. "The impact of remittances on rural poverty and inequality in China," Policy Research Working Paper Series 4637, The World Bank.
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  8. David Mckenzie & Hillel Rapoport, 2004. "Network Effects and the Dynamics of Migration and Inequality: Theory and Evidence from Mexico," Working Papers 2004-3, Bar-Ilan University, Department of Economics.
  9. Harris, John R & Todaro, Michael P, 1970. "Migration, Unemployment & Development: A Two-Sector Analysis," American Economic Review, American Economic Association, vol. 60(1), pages 126-42, March.
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  11. Rapoport, Hillel & Docquier, Frederic, 2006. "The Economics of Migrants' Remittances," Handbook on the Economics of Giving, Reciprocity and Altruism, Elsevier.
  12. Banerjee, Abhijit V & Duflo, Esther, 2003. " Inequality and Growth: What Can the Data Say?," Journal of Economic Growth, Springer, vol. 8(3), pages 267-99, September.
  13. Meng, Xin & Zhang, Junsen, 2001. "The Two-Tier Labor Market in Urban China: Occupational Segregation and Wage Differentials between Urban Residents and Rural Migrants in Shanghai," Journal of Comparative Economics, Elsevier, vol. 29(3), pages 485-504, September.
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  16. Benjamin, Dwayne & Brandt, Loren & Giles, John, 2005. "The Evolution of Income Inequality in Rural China," Economic Development and Cultural Change, University of Chicago Press, vol. 53(4), pages 769-824, July.
  17. Cai Fang & Du Yang & Wang Meiyan, 2009. "Migration and Labor Mobility in China," Human Development Research Papers (2009 to present) HDRP-2009-09, Human Development Report Office (HDRO), United Nations Development Programme (UNDP), revised Apr 2009.
  18. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  19. Stark, Oded & Bloom, David E, 1985. "The New Economics of Labor Migration," American Economic Review, American Economic Association, vol. 75(2), pages 173-78, May.
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