Fiscal Decentralization, Rural Industrialization and Undocumented Labour Mobility in Rural China, 1982-87

Chen Y. P. Fiscal decentralization, rural industrialization and undocumented labour mobility in rural China, 1982-87, Regional Studies. 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 labour migration during China's initial reform period. A Heckman model is employed to correct for the zero observation problems and to estimate consistently the labour mobility with a modified gravity equation. Given the institutional barriers, the fiscal decentralization has two contending effects on labour market integration: local economic development promotes labour mobility, but local public goods crowding restrains the inflow of labour at the destination. The crowding effect is stronger at lower levels of government.