Impacts of Migration and Remittances on Ethnic Income Inequality in Rural China

Migration is often viewed as the best option for poor rural households to exit out of poverty, although the distributional effects of migrants' remittances tend to be ambiguous in the literature. Given that increasing income inequality is a major concern and policy issue, this paper examines the impacts of migration and migrants' remittances on income inequality in China's rural minority areas using recent proprietary household data. Treating migrants' remittances as a potential substitute for income, the results reveal that migration significantly boosts income for all ethnic groups, although the returns to ethnic minority households tend to be less than for Han households. Decomposition analyses further reveal that migration increases inequality between ethnic groups despite reducing spatial inequality. These countervailing effects imply that the continual transfer of rural urban migrants will likely lead to spatial convergence despite reinforcing ethnic inequalities in rural minority areas. Importantly, the percentage contribution of ethnic inequality to total inequality is larger than that of spatial inequality across sampled rural locations, thus highlighting the fact that the ethnic dimension is an important, yet often overlooked component of inequality in China. (C) 2017 Elsevier Ltd. All rights reserved.School of Economics at Peking UniversitySSCIARTICLE,SI200-2119