On the Rural Economy of China: How do Rural-Urban Migration and Rural Non-farm Business Affect Each Other?
Jialu Liu

Abstract
Since the 1980s, China has actively pursued strategies to increase rural-urban labor mobility and to encourage the development of rural non-farm industries. As a direct result, rural individuals began to seek employment opportunities outside of farm sector. They faced two primary options: working in urban sectors as migrant workers, and working in rural non-farm business. The focus of this paper is on the relationship between the two occupational choices. This paper uses household survey data from ten provinces in China, for the period 1995-1999. The results reveal two layers of relationship between outward migration and rural non-farm business. The first (or direct) effect indicates that, households with migrant family members are less likely to be in non-farm business. This relationship is caused by time and labor constraints facing rural households. The second (or indirect) effect indicates that, households with migrant family members are more likely to be in non-farm business. This relationship is caused by unobserved characteristics which impact the probability of migrating and starting business in the same direction. Such unobserved characteristics include migrant network in urban areas, entrepreneurial skills and risk attitude. The two effects exist at the same time, though via different channels. Furthermore, better education, larger family size, and a higher proportion of male family members increase the likelihood of both migrating and starting business.

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