What Effect Does CCP Membership Have on Rural to Urban Migration in China

Schubert

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Joe Schubert Econometrics Professor Robertson 5/4/10 CCP Membership and Migration in China Introduction China has a unique convergence of strong social networks, rampant rural to urban migration, and an all-powerful communist party in an increasingly capitalist state. “Guanxi” translates from Mandarin to English as “a close and personal relationship” or “connections” yet this fails to communicate the immense social capital and strength of these connections in Chinese society. The resulting social networks based on guanxi influence business practices, legal decisions and many other facets of life. The Chinese Communist Party (CCP) holds near complete political power in China and since the 1950’s has influenced or controlled every aspect of Chinese politics and society. The CCP’s involvement in political matters have led to censorship (blocking Facebook and Youtube), the imprisonment of opposition parties and unchecked murders. The CCP and the Chinese Government lacks sufficient institutional checks and balances and, instead, thrive in a political atmosphere that encourages corruption and under-the-table deals. Thus, guanxi and social networks have particular significance in government interactions. China’s economic growth centers around urban special economic zones on the east coast. The growth of these centers exacerbates an urban-rural income gap that spurs urban migration; the ratio of urban to rural income estimates hover near 3.3 to 1 (Liang 2001). Often through its ingrained networks and informal, quasi-legal perks, CCP membership adds a premium on these already higher urban incomes. Considering this income premium and the strong CCP networking systems, this paper aims to examine CCP membership’s role in China’s urban migration and specifically on an individual’s probability to migrate.

and concludes that age nonlinearly relates to migration with peaks for the younger (new workforce entrants) and older populations (closer to or at retirement). social networks. Li and Zahniser (2002) look at education (the least and most educated populations have a higher migration probability) and land ownership (land holdings have no effect but farming . draw conclusions and offer suggestions for further research. Kaluzny (1975) examines race and poverty level as influential factors in domestic United States migration. In looking at individual’s characteristics. The literature identifies myriad characteristics. finding that lower income white individuals have the highest probability of migration and are particularly sensitive to the effects of other characteristics (such as age and family size). As with this paper. the literature focuses on studying rural to urban migration. Literature Review Migration literature defines the individual’s migration probability as a cost-benefit analysis. Plane (1992) looks at age in the U. The paper first reviews relevant literature to find a wealth of studies on the three focal subjects—migration. I will then apply data from a 2002 survey of Chinese rural residents and migrants to empirically analyze the question. and China’s rural-urban divide—yet none connect all three nor do so through the useful lens of the CCP. the guiding question will be: how does CCP membership affect an individual’s probability to migrate from rural to urban China. lower income individuals have financial barriers to migration while higher income individuals have less incentive to leave their higher paying job (higher costs). Park & Wang (2005) and Mckenzie & Rapoport (2005) find an inverse “U” relationship for income and migration. Du.What Effect Does CCP Membership Have on Rural to Urban Migration in China Schubert 2 Throughout the paper.S. character traits and conditions that influence the cost benefit analysis and thus their migration probability. The paper will then use this literature to build a theoretical framework and functional model. the literature spans from human capital (education) traits to age and race.

and healthier males have a higher probability of migrating in China. Social network literature states that networks lead to economic advantages and that in China this relationship is particularly strong due to guanxi. Networks reduces the costs of migration (and increases the probability) by providing information and contact on jobs and housing. Banerjee (1983) finds that social networks encourage migration in India by creating a “chain effect”.S. CCP membership merits consideration in migration studies. better educated. Munshi (2001) builds upon this literature by finding the size of the migrant population at the destination to be important in Mexico to U. Wu (2009) finds younger.S. Rauch and Trindale (1999) highlight the importance of Chinese social networks and guanxi as a catalyst for trade in Southeast Asia. Tsang (1998) identifies guanxi as both an impediment and opportunity for Sino-American business deals due to U. Hu (2008) finds similar results in China. In doing so. No migration study has looked at political affiliation as a characteristic that may impact an individual’s cost benefit analysis. migration. they exhibit the uniqueness of Chinese guanxi (contrasted against other Asian countries’ networks) as well as its inherent strength (its ability to function independently outside of China). As the following literature on social networks and CCP member’s incomes suggests. the migrants in the destination create a network that encourages individuals from their home to migrate. He further shows the importance of networks and the unique cultural importance they have in Chinese business deals. Multiple authors have then looked at social networks in the context of migration to again find social networks as influential.What Effect Does CCP Membership Have on Rural to Urban Migration in China Schubert 3 incomes have a negative relationship with migration). Knight and Yueh (2008) agree that networks have significant influence yet argue that they can increase an individual’s ties to an area: the networks provide both unquantifiable benefits . underestimation and misunderstanding of guanxi. deeming China’s rural to urban migration a self-sustaining system.

Knight. Meng. again reinforcing the close ties between livelihood and social networks. Ximing. Knight and Yueh point to the CCP as a strong network in China. Li. and Zhou (2008) show that private entrepreneurs who have party membership enjoy more success due to social networks. Well-established relationships are required to identify and take advantage of these weak institutions. A gap exists in the literature concerning the effects of CCP membership and China’s large scale migrations. the costs of leaving it and migrating will increase. Furthermore. The premium could spur migration or it could rely on long-standing guanxi and thus . income is higher than for non-CCP members. while migration literature acknowledges networks’ influence on migrant’s cost-benefit choices. As an individual develops their network. Wall (2006) points to a Chinese University of Hong Kong Study that found urban CCP members to have income 28% higher than non CCP members. The literature suggests that CCP members enjoy particularly higher urban incomes yet no study has furthered this to ask if that premium influences the cost benefit analysis of migrants. They remark that party members do well where legal protection and market institutions are the weakest. the cost to leave them and migrate increases. Sicular. Gustafsson and Shi (2007) studied various factors that might cause the urban to rural income gaps in China (education has significant influence while family size has little) and suggested that CCP membership might have some influence but their results were not conclusive. Liang (2001) argues China is currently going through an “age of migration” as urban incomes dwarf rural incomes. Thus. CCP membership adds a significant premium onto urban incomes. Appleton. Song & Xia (2005) and Bishop & Liu (2008) find that for urban CCP members. Wang. whether they discourage or encourage migration remains debated.What Effect Does CCP Membership Have on Rural to Urban Migration in China Schubert 4 (personal relations) and informal perks and ease in business deals. once an individual establishes these connections.

Sex is included because females have higher mobility in China. with some using it to account for skill while others using it to proxy the member’s knowledge level concerning the true costs and benefits for migration. If the costs equal the benefits. The literature squares age as it has a non-linear effect on migration. the individual does not migrate. income and education.What Effect Does CCP Membership Have on Rural to Urban Migration in China Schubert 5 be irrelevant for newcomers. and takes the probability of migration as a linear function of characteristics and expected income. often retiring or working less (less costs to migration). The theory deviates in education. network theory suggests that membership in a group. especially as ingrained as the CCP. education. affects migration. If the benefits are greater than the costs. Industry and . younger ages have more years ahead to gain from migration (benefits increase) while the older generations have much of their life in the past and settled. the individual migrates. There are three outcomes for the individual’s decision to migrate. Rational utility maximization based on the costs and the benefits is assumed. sex. family size. The individual characteristics used include age. The theory for the cost-benefit analysis derives from the above literature. Furthermore. the individual is indifferent and the decision ambiguous. If the costs are greater than the benefits. many migrate for marriage or because the industrial jobs on the east coast offer employment at wages that are lower and due to higher average male wages. attract more females. A positive relationship between education and migration probability suggests that the theory holds true and those with either higher skills or more knowledge of means to migrate will have a higher probability of moving. The theory uses the individual’s costs and benefits and their characteristics to find the probability that they will chose the second of these three choices and migrate. Theory This section will provide a theoretical framework to approach the individual’s probability of migration based on CCP membership.

The increased demand will increase wages. A major advantage of this approach is its use of diminishing marginal utility. Distance in between the origin and potential destinations is used as a measure of logistical costs to migration (e. Another popular method—and the one used in this paper—is to take the individual’s starting income. This theory assumes that individuals in similar industries and with similar occupations will face the same opportunities and the expected gains will then be based on their initial income. This theory assumes that the individual cannot borrow money to finance their migration. Consequently.What Effect Does CCP Membership Have on Rural to Urban Migration in China Schubert 6 occupation is included to proxy the individual’s skill sets. certain industries experience relatively larger increases in production and labor demand. giving the individual more benefits with migration. train tickets and housing registration fees). Some theory uses the probability of moving to a certain location based on past migration patterns to proxy this. assuming that if t other factors such as industry are accounted for. An individual at a lower income will perceive the benefits of a 100 RMB increase to be higher than a higher income individual will. . Others take the standard of living at either the origin or at possible destinations.g. the individual must have a minimum income level in order to meet the monetary transportation and bureaucratic costs of migration (e. The 100 RMB increase may double an individual’s income and thus give them considerably more utility while it will only marginally increase the income of an individual with a higher starting income and thus give them relatively less marginal utility from that 100 RMB (see figure 1). Expected income gains are the main benefit of migration yet the most difficult to represent. The theory attempts to capture the individual’s expected income increase from migration. this will help represent the possible increases those at specific wages expect. train tickets).g. Also. It assumes that past migrants faced the same decision and their behavior then encapsulates the benefits and can be applied to individuals currently deciding.

Corresponding regression results are an increased probability of migration but not higher changes in income (the benefits are not increasing) for party members. First. First.What Effect Does CCP Membership Have on Rural to Urban Migration in China Schubert 7 CCP membership influences the costs and benefits of migration to give three outcomes: increasing. Second. and CCP status. The CCP coefficient will give the added premium (if any) with CCP membership. industry. If urban premiums to CCP membership are significant enough to increase the benefits of migration (holding costs constant). the added premium on the change in income for party member migrants will be measured. occupation. CCP membership could have . Regression results would show no relationship between CCP membership and the probability of migration. CCP could increase the probability of migration by either reducing the costs or increasing the benefits of migration. age. we can determine these to be insignificant in the individual’s choice. Second. CCP membership might have no influence. decreasing and not affecting the probability of migration. Two regressions will be run to examine the individual’s choice. If CCP members still show higher wage increases. CCP membership could fail to significantly influence either the costs or benefits of migration and thus not affect an individual’s probability of migration. CCP membership could reduce the costs of migrations by providing connections and information (for example. The latter model is based on a general income as dependent variable model with sex. in job and housing searches) that minimize time and resource waste (and lower the expected cost if either is pre-arranged). Conversely. the probability of migration will be modeled as a function of the relevant and available characteristics. Corresponding regression results are both increased probability of migration for party members and a higher change in income for CCP members. they will in turn increase the probability of migration.

CCP membership could have a negative influence on migration by increasing the costs. a negative relationship between CCP membership and the probability of migration would be observed. Summary of statistics: This section will first describe the ideal data set then review and describe the used data. occupation. industry. Corruption plagues China and particularly the CCP. This paper . The data used in this study include party membership. thus informal and illegal perks or bonuses unique to CCP membership may increase opportunity cost and cause the individual not to migrate. These could range from unaccounted perks (free vacations) to bribes. Third. If CCP membership discourages migration. income prior to migration (if applicable) and current income for all individuals. Ideal data would give information on party membership. In the regression.What Effect Does CCP Membership Have on Rural to Urban Migration in China Schubert 8 positive and negative effects on migration that balance out but given the models. CCP members are losing benefits (suffering costs) that are not captured by income and that outweigh the benefits. Income prior to and after migration and the individual’s expected income with migration would also be included. sex. If CCP migrants have a higher change in income over non-CCP members. The ideal data set would group individuals by their original location with possible destination location probabilities determined by the number of past immigrants from their home origin. industry and education prior to migration. If CCP migrants have smaller changes in income than non-CCP members. Family size can be reasonably discounted for this study due to China’s one child policy. age. occupation. family size. education. sex. these are undetectable. CCP members also receive income premiums in the rural setting. age. the personal and business guanxi at their origin will have enough sway through ease in business and informal income.

Chinese Academy of Sciences. and local government officials were interviewed. industry and occupation will largely explain an individual’s expected income with migration. The Asian Development Bank. This study considers migrants from 1996 to 2002.What Effect Does CCP Membership Have on Rural to Urban Migration in China Schubert 9 assumes that incomes before migration. The migration data set gave the year of migration for each individual. . In late 2002 teams throughout China interviewed individuals using a standard questionnaire form. collects information on rural and urban income distributions throughout the People’s Republic of China. the East Asian Institute. the Chinese Household Income Project of 2002. As the interviewers attempted to question the “head of the household” (presumably defined by the house). the Ford Foundation. The Institute of Economics. The data’s source. and Columbia University all support and fund the project. To avoid including multiple family members or young children. party officials. I dropped all observations in which the interviewee was not the head of the household. As the paper is studying CCP membership. Incomes were adjusted according for inflation using data provided by the National Bureau of Statistics of China. a majority of observations were kept. One individual per house could answer questions about the others. The two chosen data sets. village leaders. observations with no CCP membership response were also dropped. “Rural-Urban Individual Data” and “Rural Individual Income. Both interviewed individuals yet attempted to get information on all individuals within a household. those before 1996 were dropped. Consumption and Employment”. The questionnaires covered a diverse spectrum of topics (and many not included in this study) from life satisfaction to health care and they produced ten different data sets. In addition to individuals and households. The rural data set gave incomes as average monthly income and thus any yearly incomes were divided by 12 to get monthly averages. had some differences in format and thus slight modifications were made to both.

The following equations show the linear form of the models: The limited dependent variable equation has heteroskedasticity but this can be disregarded. The linear change in income model does not have heteroskedasticity (using the Breusch-Pagan and the Cook-Weisberg test for heteroskedasticity). The sex dummy variable shows a higher percentage of male individuals (1 being male). Braum (2006) states heteroskedasticity as inevitable for models of discrete and limited dependent variables.What Effect Does CCP Membership Have on Rural to Urban Migration in China Schubert 10 Significant statistics on the data are summarized in table 1. This monthly income at the origin has an average of 320. I created a variable that gives all of the individuals income at their original location in 2002 RMB (unchanged from current income for non-migrants). After adjusting migrants’ pre-migration income for inflation. All of the variables have variance inflation factors below 3 (and below the 5 threshold) and thus do not risk .7 years of education.19. the logit and probit models are used and followed by the calculation of their marginal effects (“mfx”). Regardless of migration status. To avoid unboundedness problems for the probability of migration regression. showing that 19% of observations were migrants. The dummy variable for migration has a mean of . the individuals had an average monthly income of 391 RMB in 2002. The average age of the individuals was 42 years old with an average of 7. Analysis: Following the theory and the literature. a linear model with the explanatory variables linearly modeled is the foundation of both regressions.

suggesting that the urban CCP member’s higher incomes are due to connections created over time. There is no reason to suspect serial correlation. those who migrate do not. Using model 2 to and taking migrant’s change in income as a function of CCP and other characteristics shows CCP membership to be insignificant (table 3). Furthermore. The other coefficients’ signs align with theory. I developed a .5% higher probability of not migrating. I created two other proxies with the migrant data. Next.5%.071 RMB. I developed a model with the migrant’s change in income as the dependent variable and the original income’s natural log as an explanatory variable (using the same basic income model theory). shows this “expected change” to have similar coefficients. To test the use of original income as a proxy of expected income. Robustness checks verify these results. The results. suggesting that they also have built up these connections (just in the rural setting). The T statistic does not meet the critical value nor is the value itself significant (suggesting that CCP membership increases wages by . instead relying on more personal “guanxi”.What Effect Does CCP Membership Have on Rural to Urban Migration in China Schubert 11 multicollinearity. the data is not time series nor does it have large differences in observation values.8% and 6. individuals will have a 7. This model captures how migrants can expect their income to change based on others’ experiences. Sex shows that females have a roughly 20% higher chance of migration. The CCP results confirm the theory that CCP membership benefits stem from time strengthened relationships and network benefits. or $. Although urban CCP members have higher incomes. The logit and probit models results (table 2) show that with party membership. This also refutes any theory that CCP membership acts as a national network. in table 4. First. Education increases the probability of migration by roughly .01). the rural CCP member’s have a lower chance of migrating. I then applied this model to those who didn’t migrate to model how their income might change with income.

I repeated these steps with another random sample from the non-migrant data to find similar results (table 5). I used the same explanatory variables as with the previous model. Despite these confirmations of robustness. The results appeared similar to those in the other robustness check and the original regression. From this. Again. this was applied to all individual’s to estimate what an individual would estimate as their income improvements with migration based on initial income. This model aims to capture the “estimated income” improvement for migrants as a function of their original income.What Effect Does CCP Membership Have on Rural to Urban Migration in China Schubert 12 model with the difference between what migrants were making and what they thought they would make if still at home as the dependent variable. I randomly dropped non-migrant values to give migrants and non-migrants identical observation numbers (1224). The data set had a larger population of non-migrants than migrants (a 5 to 1 ratio). Conclusion The question could be further researched through looking at the costs and benefits of rural CCP membership. More advanced models and regression techniques that delve into an individual’s expected gains are beyond the scope of this paper but could give further insight into the CCP membership question. my original probability of migration model could be improved by including more information on the home locations for all individuals and the destination location for the migrant. I then re-ran the probit model and found similar signs and larger magnitudes (suggesting that CCP membership decreases migration by 20%). To remove any bias this might have caused. geographic influences (such as distance) can be added and the influence of geographic networks could be accounted for. The literature tends to focus on urban membership yet given China’s focus on .

.What Effect Does CCP Membership Have on Rural to Urban Migration in China Schubert 13 agrarian reform from the 1950’s to the 1970’s. Furthermore. CCP members do not receive a premium upon entering the urban labor market. social connections and migration in China. the benefits of CCP membership could be examined through looking at time in the party as this paper suggests that the CCP networks strengthen over time. Theory does not support a decline in benefits causing negative impact of CCP membership on migration and thus CCP and migration’s negative relationship can reasonably be attributed to an increased cost of migration. Furthermore. suggesting that the urban CCP income premiums result from developed relationships and guanxi. rural membership merits examination. we can expect that the individual is suffering lost opportunity costs that do not appear on their formal income and can be attributed to informal income (such as bribes or perks). This suggests that corruption continues to plague the CCP (and thus China’s government-public relationship as a whole). I find that CCP membership has a negative effect on an individual’s migration probability. because the increased cost of migration does not appear as a negative change in income. Through examining the effects of CCP membership on migration in China. this paper considers the relationship of political networks.

72954 2.900864 Total Observations: 6354 Min 0 0 16 0 0 0 0 0 1995 1 Max 1 1 84 1 17 44 30000 46411.3943995 Sex 6354 .2457074 Age 6354 42.03006 7.064526 0.697 2. Dev.What Effect Does CCP Membership Have on Rural to Urban Migration in China Schubert 14 Figure 1: Diminishing Marginal Utility Table 1: Summary of Statistics Variable Obs Mean Std.10135 5.29493 10. Migrate 6354 0.899308 2002 Monthly Y 6354 391.8899 Y at Origin (monthly) 6354 320.4093 764.165391 Occupation 6354 12.518809 Industry 6354 22.8869 698.63 2002 22 .1735914 0.3787876 Years of Education 6354 7.4727 Migration Year 1224 1998.1926346 0.1193 CCP 6354 0.

072 (3.0187335 -0.0652864 (11.0000537 (8.13)* Industry -0.26)** Sex -0.31) Occupation -0.03) (10.0052071 0.48) (14.53)** Constant 4.86) Y at Home 0.19) Age -0.0078118 -0.What Effect Does CCP Membership Have on Rural to Urban Migration in China Schubert 15 Table 2: Probability of Migration Variable Logit Probit CCP -0.053 -0.46 Age 0.69 Years of Education 0. Coefficients on Income Squared and Age Squared are Omitted Table 3: CCP and Income Change Variable Coefficient CCP 0.02 (2.02) Years of Education 0.0000672 0.74)** age2 -0. ** significant at 1% .774 (9.027 (2.99) Observations 6354 Notes: Z Statistic Absolute Value in Parenthesis.18) Industry -0.071 0.05 Robust t statistics in parentheses * significant at 5%.78) (12.25) (15.0413666 (16.54) Sex 0.019 (3.25) (7.63)** Observations 983 R-squared 0.001 (3.54)* OCC 0.2072129 0.0160625 (22.0061587 (15.0494994 -0.84) (20.004128 (3.32) (3.1657408 (12.0780701 -0.

0415541 -14.46 3.61 -22.01 -10.33 Occupation -0.0004364 0.26 -15.0946253 -0.0078512 -0.4392682 0.05 .2074056 -0.8 8.2190962 0.85 -1.66 2.1324771 -13.7 Industry -0.23 Table 5: Robustness With Equal Observations on Migrants and NonMigrants Variable Regression 1 Regression 2 CCP -0.0012783 11.0004778 0.0171838 -0.12 Years of Education 0.0457217 -0.35 -13.0078024 -0.0846012 -0.0241674 -10.98 Age^2 0.51 -14.03 Age^2 0.0161586 -22.0052818 0.0061919 -14.0199975 -0.0383685 -0.39 -16.0041961 2.5 -23.What Effect Does CCP Membership Have on Rural to Urban Migration in China Schubert 16 Table 4: Robustness with Expected and Estimated Changes Expected Change Estimated Improvement Variable Probit Logit Probit Logit CCP -0.35 3.79 12.51 -13.0496991 -0.42 Age -0.1666061 12.09 5.51 Y at Home^2 -4.0060813 -0.51 11.27 11.52 Sex 0.87 12.31 -10.0783934 -0.12E-09 -1.0702816 -0.0000332 -0.0003692 0.0000265 -6.72 Sex 0.1455713 -0.0034321 0.22 Industry -0.0044968 0.0231557 -0.94 -20.61 -4.08 13.96 Expected Income -0.77 -6.03 Years of Education 0.62 3.2084949 -4.0655591 -11.91 -11.0277581 0.1176349 -0.0004023 12.2081701 0.23 -15.0188327 -0.059217 -0.06 Y at Home 0.57 Occupation -0.1761221 0.2 Age -0.43 -8.0001735 7.47 -13.42 11.000258 0.94E-09 -3.0216165 4.056493 -23.5093353 7.3 -7.73 -20.67 -11.0014234 0.64 14.

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