Fiscal Decentralization, Rural Industrialization, and Undocumented Labor Mobility in Rural China (1982-87)
70 Pages Posted: 11 May 2015
Abstract
This paper explores the relationship between fiscal decentralization, which gave greater rural industrialization and fiscal authority to local governments, and the emergence of rural-rural undocumented inter-provincial labor migration during China's initial reform period. A Heckman model is employed to correct for the zero observation problems and to consistently estimate the labor mobility with a modified gravity equation. Given the institutional barriers, the fiscal decentralization has two contending effects on labor market integration: Local economic development promotes labor mobility, but local public goods crowding restrains the inflow of labor at the destination. The crowding effect is stronger at lower levels of government.
Keywords: fiscal decentralization, local economic development, local public goods, rural labor mobility
JEL Classification: H30, J61, J68, D72
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