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Where did all the remittances go? Understanding the impact of remittances on consumption patterns in rural China

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We focus on the impact of migrants’ remittances on consumption patterns in China. Using a large homogenous sample of rural households surveyed in 2001 and 2004, we find that remittances are spent on nonhousing consumption expenditures at the margin, virtually dollar-for-dollar, when we instrument remittances and local employed earnings using proxies of social networks. Our findings are robust to intra-household division of labour and to fixed-effect for the county in which the respondents are registered. These results imply that rural households largely take remittances as permanent income and are consistent with the prevalence of circular and repeat migration in China.
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Keywords: China; D12; D13; J61; R23; consumption patterns; fixed-effect instrumental-variables estimation; remittances; rural–urban migration

Document Type: Research Article

Affiliations: 1: School of Economics, University of Kent, Canterbury, CT2 7NP, UK 2: Nottingham Business School, Nottingham Trent University, Nottingham, NG1 4BU, UK 3: Department of Rural Social and Economic Survey, National Bureau of Statistics of China, Beijing, 100826, China 4: Department of Comprehensive Statistics, National Bureau of Statistics of China, Beijing, 100826, China

Publication date: 23 April 2014

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