Impacts of Migration on Household Production Choices: Evidence from China

Download Impacts of Migration on Household Production Choices: Evidence from China

Post on 01-Mar-2017

214 views

Category:

Documents

1 download

Embed Size (px)

TRANSCRIPT

  • This article was downloaded by: [University of Sussex Library]On: 28 October 2014, At: 11:01Publisher: RoutledgeInforma Ltd Registered in England and Wales Registered Number: 1072954 Registeredoffice: Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK

    The Journal of Development StudiesPublication details, including instructions for authors andsubscription information:http://www.tandfonline.com/loi/fjds20

    Impacts of Migration on HouseholdProduction Choices: Evidence fromChinaChenggang Wanga, Nicholas Radab, Lijian Qinc & Suwen Panda Department of Agricultural and Applied Economics, Texas TechUniversity, & Texas A&M AgriLife Research and Extension Centerat Lubbock, Texas, USAb Market and Trade Economics Division, USDAs Economic ResearchService, Washington DC, USAc Department of Economics, Anhui University of Finance andEconomics, Bangbu, Chinad World Agricultural Economic and Environmental Services,Columbia, Missouri, USAPublished online: 02 Jan 2014.

    To cite this article: Chenggang Wang, Nicholas Rada, Lijian Qin & Suwen Pan (2014) Impacts ofMigration on Household Production Choices: Evidence from China, The Journal of DevelopmentStudies, 50:3, 413-425, DOI: 10.1080/00220388.2013.866221

    To link to this article: http://dx.doi.org/10.1080/00220388.2013.866221

    PLEASE SCROLL DOWN FOR ARTICLE

    Taylor & Francis makes every effort to ensure the accuracy of all the information (theContent) contained in the publications on our platform. However, Taylor & Francis,our agents, and our licensors make no representations or warranties whatsoever as tothe accuracy, completeness, or suitability for any purpose of the Content. Any opinionsand views expressed in this publication are the opinions and views of the authors,and are not the views of or endorsed by Taylor & Francis. The accuracy of the Contentshould not be relied upon and should be independently verified with primary sourcesof information. Taylor and Francis shall not be liable for any losses, actions, claims,proceedings, demands, costs, expenses, damages, and other liabilities whatsoever orhowsoever caused arising directly or indirectly in connection with, in relation to or arisingout of the use of the Content.

    This article may be used for research, teaching, and private study purposes. Anysubstantial or systematic reproduction, redistribution, reselling, loan, sub-licensing,

    http://www.tandfonline.com/loi/fjds20http://www.tandfonline.com/action/showCitFormats?doi=10.1080/00220388.2013.866221http://dx.doi.org/10.1080/00220388.2013.866221

  • systematic supply, or distribution in any form to anyone is expressly forbidden. Terms &Conditions of access and use can be found at http://www.tandfonline.com/page/terms-and-conditions

    Dow

    nloa

    ded

    by [

    Uni

    vers

    ity o

    f Su

    ssex

    Lib

    rary

    ] at

    11:

    01 2

    8 O

    ctob

    er 2

    014

    http://www.tandfonline.com/page/terms-and-conditionshttp://www.tandfonline.com/page/terms-and-conditions

  • Impacts of Migration on Household ProductionChoices: Evidence from China

    CHENGGANG WANG*, NICHOLAS RADA**, LIJIAN QIN & SUWEN PAN

    *Department of Agricultural and Applied Economics, Texas Tech University, & Texas A&M AgriLife Research and ExtensionCenter at Lubbock, Texas, USA, **Market and Trade Economics Division, USDAs Economic Research Service, WashingtonDC, USA, Department of Economics, Anhui University of Finance and Economics, Bangbu, China, World AgriculturalEconomic and Environmental Services, Columbia, Missouri, USA

    Final version received September 2013

    ABSTRACT The great migration from Chinese farms to cities during the past several decades ranks among themost economically consequential of modern population movements. We use a national sample of rice-producingChinese households to examine the effects of that migration on agricultural production. Our assessment involvesevaluating four alternative theories of labour market equilibrium in the framework of an expanded agriculturalhousehold model. Migrations farm production impacts appear to be slight, not on account of farm labour marketperfections or remittance-financed technological improvements, but by substituting a reduction in leisure andother low-return activities for lost labour.

    1. Introduction

    The impact of migration on agriculture has important policy implications in less developed countries,where policy-makers face the dual task of facilitating food production for an underfed population andproviding inexpensive labour for emerging industries. If labour migration from farm to industryreduces agricultural output, the consequent food-price inflation can weaken industrial competitiveness(Ray, 1998, p. 353). The purpose of the present analysis is to evaluate the impact of agricultural labourmigration on farm production choices. To examine this issue, we employ a national dataset of Chineserice-producing farm households. We further offer a new econometric approach for studyingmigrations impact on farm decisions, one that is particularly useful when instrumental-variableestimation is precluded by a scarcity of instruments.

    The development economics literature suggests varying theories of farm labours migration impacts onagricultural production. Lewis (1954) and Ranis and Fei (1961) argue farm labour is generally over-abundant in less-developed countries, so farm production is little affected by labour movement. Theagricultural household model (AHM) predicts similarly that farm production choices are independent ofconsumption and off-farm employment (Singh, Squire, & Strauss, 1986). The new economics of labourmigration (NELM) postulates that, while productive labour lost to non-farm sectors reduces farm produc-tion in the short run, migrant remittances home can compensate for the loss by financing new farmtechnology (Stark & Bloom, 1985). Each of these theories is examined in our application to Chinese rice-producing farm households. We hypothesise that rural labour is underutilised, such that agricultural labourmigration has not significantly affected rice-producing farm households production choices.

    Correspondence Address: Chenggang Wang, Texas Tech University, PO Box 42132, Lubbock, TX 79409, USA. Email:chenggang.wang@ttu.eduThe views expressed are those of the authors and may not be attributed to the Economic Research Service or the United StatesDepartment of Agriculture.

    The Journal of Development Studies, 2014Vol. 50, No. 3, 413425, http://dx.doi.org/10.1080/00220388.2013.866221

    2013 Taylor & Francis

    Dow

    nloa

    ded

    by [

    Uni

    vers

    ity o

    f Su

    ssex

    Lib

    rary

    ] at

    11:

    01 2

    8 O

    ctob

    er 2

    014

    mailto:chenggang.wang@ttu.edu

  • The employed econometric framework alleviates a principal concern in the empirical literature ofmigrations effects on farm household behaviour: missing-variable bias. Such bias arises from thesimultaneity of the households migration, production and consumption decisions, and the most widelyadopted solution is instrumental-variable estimation (de Brauw & Giles, 2008; Lucas, 1987; Rozelle,Taylor, & de Brauw, 1999). This technique can, in theory, correct missing-variable bias, but itfrequently is limited by a dearth of powerful instruments. Lacking valid instruments, our approachis to narrow the set of missing variables and search for ways to control for them. More specifically, weanalyse four probable equilibria in an expanded agricultural household model and identify in each ofthem the required control variables when regressing household production choices on migrant employ-ment. Then, through empirical tests, we determine the equilibrium most representative of our samplesdata generating process.

    Upon selecting the optimal equilibrium, we assume the existence of an urbanrural wage gap. Wefurther assume that a households decision to release a member for migrant employment is determinedby household labour quality and urban job market conditions, but not by agricultural marketconditions or technological constraints. In a regression of household production choices on migrantemployment, therefore, missing agricultural market and technological factors will not lead to seriousestimation bias. The econometric task is thus reduced to controlling for household and villagecharacteristics affecting both farm and migrant labour supply.

    Our results indicate that migrant employment sacrifices Chinese household rice production by anegligible amount. The modesty of this loss does not appear to be explained by the agriculturalhousehold models proposition that lost family labour can be substituted for by hired labour in aperfect labour market. Nor does it appear to be explained by the new economics of labour migrationsargument that households invest off-farm income in new technology to compensate for lost productionwhen labour migrates. Rather, it appears rice-producing households have demonstrated an ability andwillingness to reallocate their time from leisure and other low-return activities to production,compensating for a large portion of the lost labour. Our findings thus echo the notion of surpluslabour proposed by Lewis (1954) and Ranis and Fei (1961).

    The remainder of the article is structured as follows. The next section describes the four labourmarket equilibria, and is followed by Section 3, which details the data and descriptive statistics.Section 4 specifies our econometric approach, Section 5 examines the results, and Section 6 concludeswith a discussion of the research findings and possible policy implications.

    2. Labour Market Equilibria

    We assess four equilibria in the agricultural household model (AHM) framework, each relating to adifferent set of assumptions on the perfection of agricultural labour markets and the existence of off-farm labour constraints. The AHM is particularly useful for this exercise because of its role inexamining the market efficiency, labour demand and food supply implications of agriculturalhousehold behaviour.1 A key feature of our model, missing in traditional AHMs, is the presence ofheterogeneous off-farm labour markets in which wages may be greater than the agricultural wage.Such a feature enables us to account for the urbanrural wage differentials widely observed in lessdeveloped countries and which have provided a foundation of dualistic economic development models(Lewis, 1954; Ranis & Fei, 1961).

    2.1. Equilibrium I: Agricultural Labour Market Perfection, No Off-Farm Labour Constraint

    Suppose the agricultural labour market is perfect in the sense that family and hired labour areperfectly substitutable in farm production and that the market is large enough for a household tobuy and sell as much labour as it wishes at the market wage. Suppose also that, while off-farmlabour markets are heterogeneous, all household members can find off-farm jobs matching theirpersonal traits, albeit at wages reflecting their personal productivities. Such intra-household

    414 C. Wang et al.

    Dow

    nloa

    ded

    by [

    Uni

    vers

    ity o

    f Su

    ssex

    Lib

    rary

    ] at

    11:

    01 2

    8 O

    ctob

    er 2

    014

  • productivity heterogeneity implies that a rational household would send to off-farm work its mostproductive member first, its second-most productive member second, and so on. In other words,intra-household productivity heterogeneity implies decreasing marginal returns to off-farm laboursupply. To formalise this assumption in continuous time, let M denote the total amount of time thathousehold members spend on off-farm work. Let wf M ; ; denote the households off-farm wagefunction, which decreases in M and depends on a vector of household demographic and humancapital characteristics and a vector of off-farm labour demand factors. The households totalearnings from off-farm employment is the integral of that wage function over off-farm employmenttime:

    R GM ; ; Z M0

    wf m; ; dm (1)

    where m is the integration variable for M. Off-farm wage is positive, wf > 0, and decreases with time

    worked, dwf

    dm < 0. Therefore, the off-farm earnings function is increasing and concave inM : GM > 0 and GMM < 0.

    The agricultural households time allocation decision is made jointly with its consumption andproduction decisions. Suppose the household maximises a twice continuously differentiable quasi-concave utility function

    UC; S; (2)

    subject to the budget constraint

    C wS I (3)

    where C is consumption, S leisure, w the market wage of agricultural labour and I the householdsbudget constraint or full income. Full income is composed of a time endowment, agriculturalproduction profit, net off-farm income and exogenous income:

    I wT pY wL rK R wM E (4)

    where T is the time endowment, Y is output, L is on-farm labour, K non-labour inputs, M off-farmlabour, R off-farm income, E exogenous income, p output price, w agricultural wage and r non-labourinput prices.

    The agricultural inputoutput relationship is governed by a twice continuously differentiable andconcave production function

    Y QL;K; (5)

    in which is a vector of farmland characteristics and technology constraints determining productiveefficiency.

    The above utility maximisation problem can be solved recursively: full income (Equation 4) isfirst maximised subject to production function (Equation 5) and off-farm earnings (Equation 1).Utility function (Equation 2) is then maximised subject to budget constraint (Equation 3), where fullincome I is now the maximised income obtained in the first stage.2 Solving the full model givesequilibrium consumption, input and output quantities, and off-farm employment. We focus in thefollowing only on the production and off-farm employment choices with which our empiricalanalysis is concerned.

    Impacts of migration on household production choices 415

    Dow

    nloa

    ded

    by [

    Uni

    vers

    ity o

    f Su

    ssex

    Lib

    rary

    ] at

    11:

    01 2

    8 O

    ctob

    er 2

    014

  • At equilibrium, marginal returns to on- and off-farm employment each equal the agriculturalwage:

    pQlL;K; w wf M ; ; (6)

    Solving the two marginal equalities in Equation (6) yields equilibrium on-farm employmentL Lp;w; r; and off-farm employment M Mw; ; . Because off-farm employmentopportunities are assumed unlimited at each wage, optimal off-farm labour supply is such thatthe wage of the last unit of off-farm labour equals its opportunity cost, namely agricultural wagew. Because the latter is exogenously determined in a perfect agricultural labour market, off-farmemployment is independent of household production decisions. Further, household farm labourdemand L in this model is, again because of agricultural wages exogeneity, independent of off-farm employment. Indeed, so are non-labour input demand K Kp;w; r; and output supplyY Y p;w; r; . That is, off-farm employment and agricultural production are mutuallyindependent.

    Imagine now the dataset generated under this equilibrium is used to regress agricultural inputs(L and K) and output (Y ) against off-farm employment (M ). Although our above analysis suggeststhe right-hand and left-hand variables in each of these three regressions are independent of oneanother, a spurious correlation may arise between them unless agricultural wage w is cont...

Recommended

View more >