Dissertation/Thesis Abstract

Market access and household welfare: Evidence from rural China
by Hou, Zhaoyang, Ph.D., The George Washington University, 2010, 181; 3389712
Abstract (Summary)

Access to markets is central to the recent thinking on poverty alleviation and economic development. Better market access implies better returns to the household endowments and also the benefits of scale economies and division of labor. While there is broad consensus regarding the positive role of market access in poverty alleviation, there is little empirical work that tries to isolate the effects of access to domestic and international markets on household outcomes in rural areas. Moreover, the existing empirical work is subject to serious endogeneity. My dissertation solves the endogeneity problem and presents empirical evidence on the effects of access to domestic and international markets on per-capita consumption and on per-capita income at the household level using data from rural China in 1995. I also examine the channels through which market access affects income by estimating the effects of market access on the probability that a household earns non-farm income, and on the levels of farm and non-farm income separately.

Identifying the effects of better market access is challenging because of a number of factors. First, the potential endogeneity of household location choice might result in positive bias. My choice of China as a case study is primarily motivated by the fact that endogenous location choice is much less of a problem in rural China due to the Hukou system that imposed stringent restrictions on geographic mobility of rural households starting from 1951. The second source of endogeneity is the targeted placement of transportation infrastructure based on, among other things, poverty reduction objectives. Drawing on the transport engineering literature on optimal road and rail route choice, I address the potential endogeneity of distances to markets with instruments that exploit topographic features of counties that lie between the origin and destination counties, along the linear routes to the markets. In addition, I control for a rich set of geographic and agro-climatic characteristics of the county where a household is located. Finally, I also control for a wide range of individual, household, and village-level characteristics, and employ province-level fixed effects.

I also use a second approach to identification that uses heteroskedasticity and does not rely on any exclusion restrictions. This method provides identification even if the geographic features of the other counties do not satisfy the exclusion restrictions. The estimates from the two identification schemes are very similar, thereby providing strong credible evidence on the effects of access to domestic and international markets on rural households.

The central conclusions from the empirical analysis can be summarized as: (i) better access has strong positive effects on real per-capita income, farm income, non-farm income, and consumption; ( ii) the effect of the domestic market is larger in magnitude; ( iii) access to domestic and access to international markets are complementary (iv) the effect of the domestic market on non-farm income is larger than that on farm income; (v) better access increases the probability that rural households participate in non-farm activities.

These conclusions are extremely robust. They survive a battery of checks including estimations with different sets of control variables, and restricted samples that exclude the villages that are closest to each market. The evidence thus indicates that the improving access to the domestic market should be accorded more prominence in any strategy for alleviating or ending rural poverty.

Indexing (document details)
Advisor: Emran, M. Shahe, Smith, Stephen C.
Commitee: Boulier, Bryan, Carrillo, Paul, Foster, James, de Brauw, Alan
School: The George Washington University
Department: Economics
School Location: United States -- District of Columbia
Source: DAI-A 71/01, Dissertation Abstracts International
Subjects: Economics, Agricultural economics
Keywords: China, Consumption, Domestic market, Farm and non-farm, Household welfare, Income, International market, Market access, Rural communities
Publication Number: 3389712
ISBN: 9781109565546
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