The dynamic effect of rural to urban migration on inequality in source villages: System GMM estimates from rural China
Using a newly constructed panel dataset that covers the 14 year period from 1997 to 2011 for more than 100 villages in China, this study analyzes the dynamic effect of rural to urban migration on inequality in source villages. Given that income inequality is time persisting, we use a system GMM framework. We found that the dynamic relationship between migration and income inequality is inversely U shaped. Specifically, contemporary migration increases income inequality, whereas lagged migration has a strong income inequality reducing effect on the sending villages. A 50 percent increase in the lagged migration rate translates into a one ninth to one tenth standard deviation reduction in income inequality.