The Impact of Remittances on Rural Poverty Reduction and on Rural Households' Living Expenditure

By Wang, Meiyan | China Perspectives, October 1, 2010 | Go to article overview

The Impact of Remittances on Rural Poverty Reduction and on Rural Households' Living Expenditure


Wang, Meiyan, China Perspectives


(ProQuest: ... denotes formulae omitted.)

Introduction.

China has witnessed the largest labour migration in the world since the reform and opening up policy was implemented. The "household responsibility system" initiated in the late 1970s made rural households the residual claimants of their marginal efforts, which solved the long-standing incentive problems associated with egalitarian compensation rules created in the commune system.*0 At the same time, changes to the pricing system of agricultural products brought increased agricultural productivity, which released a labour surplus in agriculture. The higher labour return in non-agricultural sectors motivated surplus rural labour to migrate out of agriculture. *2)

Since the mid-1980s, rural labourers started to migrate out of agriculture, either switching to employment in the local nonagricultural sectors or going to cities and towns to work. Since the reform of the urban welfare system in the early 1990s, more and more rural labourers have moved to urban areas to seek employment. According to the most recent figures from the National Bureau of Statistics, the total number of rural migrants who remained in cities and towns for more than six months in the past year reached 145 million in 2009.

However, the household registration (hukou) system still functions as an "invisible wall" that defines the different identities of urban local residents and rural migrant workers and discriminates against migrant workers. *3) Most of rural migrant workers work in "three D" (dirty, dangerous or degrading) occupations in the urban labour market and are not well protected by the current social security system. In addition, the current rural land contract system makes rural land transfer very difficult.

Under these circumstances, it is very hard for rural migrants to remove all their family members from the countryside. Most rural migrants move to the cities by themselves, or bring some family members with them while leaving the rest in the countryside. Rural migrants usually keep very close connections with family members left behind in their hometowns and often remit part of their income to them.

The main aspects of rural migrant remittances on which scholars have focused include the following: ( 1 ) the amount of the remittances; (2) the factors affecting rural migrants' remitting behaviour; (3) the impact of remittances on rural poverty reduction; (4) the impact of remittances on rural households' living expenditures; (3) the impact of remittances on rural households' agricultural production.

Among these, studies on the impact of remittances on rural poverty reduction and on rural households' living expenditures have been few. This is because investigating these issues requires information not only regarding rural migrants, but also on the income and living expenditures of rural households. Up to now, most micro-surveys have covered either rural migrants at their destinations or rural households in the countryside, but not both together. Below we review some important studies on this issue, most of which use data from the late 1990s and early 2000s.

Du and Park find that labour migration from China's poor rural areas follows the hypothesis of altruism and facilitates rural poverty reduction.(4) Ravallion and Chen point out that labour migration can reduce rural poverty, although the effects of labour migration on poverty reduction might be limited by the inability of extremely poor people to migrate.(5) Research conducted by Zhu et al. shows that the marginal propensity to save out of remittances is well below half that of other sources of income.(6) Another study shows that migrants' remittances can promote consumption growth in rural areas. For migrants who migrate with all their family members, the probability of remitting is 14 percent lower than among migrants who migrate by themselves, and the amount of the remittances is also lower. …

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