New Economist

How rural villages have gained from China's great migration

Inter-county migration in China - mostly rural migrants moving to urban areas - increased four-fold during the 1990s, from just over 20 million in 1990 to 79 million by 2000. With what effect?

Co-authors Alan de Brauw from the International Food Policy Research Institute and Michigan State University's John Giles examine the impacts this great tide of migration has had on China's rural villages. Their paper, Migrant Labor Markets and the Welfare of Rural Households in the Developing World: Evidence from China (PDF), finds that rural out-migration has boosted per capita consumption and reduced inequality:

We find that increased migration from rural villages leads to signicant increases in consumption per capita, and that this effect is stronger for poorer households within villages. Household income per capita and non-durable consumption per capita both increase with out-migration, and increase more for poorer households.

Villages with the fastest growth in out-migration have seen the largest reductions in village poverty headcount and the strongest growth in average consumption levels. Out-migration has also reduced inequality - "expanded migration is associated with decreasing inequality within villages", as poorer households "supply more labor to productive activities and experience more rapid income growth".

There are mixed effects on rural investment - new earnings from urban jobs have largely been spent on better homes and durable goods:

A second important finding relates to the impact of migration on investment in rural areas. Increases in migration from rural China are associated with increased accumulation of housing wealth and consumer durables, but we do not find evidence of a significant relationship between migration and investment in productive assets.

While none of these findings are particularly unexepected, they help unpack China's economic story. And they show that it is not just international migration that brings benefits.

Why people emigrate

Semi-regular blogging service resumes this week with a few posts on migration - still a very topical issue on both sides of the Atlantic.

The first paper I'd like to highlight is by the University of Chicago's Jeffrey Grogger, and UCSD's Gordon H. Hanson. Their recent NBER Working Paper No. 13821, Income Maximization and the Selection and Sorting of International Migrants, seeks to explain to what extent selection and sorting account for international migration flows using data on emigrant stocks by schooling level and source country in OECD destinations. As the authors conclude, a simple model can explain a lot:

Two dominant features of international labor movements are positive selection of individuals into migration and positive sorting of migrants across destinations. We show that a simple model of income maximization can account for both phenomena.

The more educated are more likely to emigrate; and more-educated migrants are more likely to settle in destination countries with higher rewards to skill. As the authors explain:

In our selection regression, we find that migrants for a source-destination pair are more educated relative to non-migrants, the larger is the skill-related difference in earnings between the destination country and the source. That is, positive selectivity is stronger where the reward to skill in the destination is relatively large. This result obtains for wage differences expressed in levels, but not in logs.

...Positive sorting is a general prediction of income maximization. In our sorting regression, the relative stock of more-educated migrants in a destination is increasing in the level earnings difference between high and low-skilled workers. This correlation is stronger when wage differences are adjusted for taxes, implying that migrants weigh post-tax earnings when choosing a destination. The U.S. and Canada enjoy relatively large post-tax skill-related wage differences, which largely account for their ability to attract more educated migrants relative to other OECD countries.

Other factors are also at work:

Our analysis also shows that language, history, and policy affect migration. English-speaking destinations draw higher-skilled immigrants than other destinations, whereas former colonial powers draw lower-skilled immigrants from their former colonies than from other source countries. Destinations with liberal refugee and asylum policies draw relatively low-skilled immigrants, all else equal.

An ungated version of the paper is available here or here.

The trouble with Joe

Ever been to a concert or play where the rest of the audience were in raptures, but you weren't? That's been my experience every time I've gone to hear Joseph Stiglitz speak on globalisation in London. Each time I've come away wondering how such a first rate economist can offer up such populist tropes, sloppy reasoning and pessimistic interpretation of the facts.

So why do his speeches (and books) make me so queasy? It's not that I disagree with most of his policy prescriptions. Like Stiglitz, I was shocked by the incompetence with which the IMF dealt with the Asian currency crisis a decade ago. And like Stiglitz, I would like to see western governments pay greater attention to those among their constituents who most stand to lose from globalisation.

Robert Skidelsky's review of Stiglitz' latest book, Making Globalization Work, makes the case more eloquently than I ever could. Writing in the New York Review of Books, he concludes:

My final criticism is that Stiglitz's book is carelessly written. Stiglitz was—and perhaps still is—an outstanding economic theorist. But he has been producing big, loosely argued books. The laudable aim behind them is to inform a broader audience about economic policies that could make the world a better place, certainly with better lives for the poor, and such advocacy has its place in moving people to action. But he lacks the eloquence, urgency, and passion of the preacher, while he has too often abandoned the rigor of the scientist. In my view, he has not yet found a style suitable to the popular exposition of his economic ideas.

Based on my readings, that's a fair cop. More rigour please Joe.