Impact of a guaranteed minimum income program on rural–urban migration in China

Abstract

Abstract This article relies on a regression discontinuity (RD) design to estimate the impact of an unconditional cash transfer from Minimum Income Living Allowance (MLSA)—one of the largest basic income guarantee programs in the world—on the household decision to participate in rural–urban migration. The study is informed by novel survey data that provide the first and only representative information on China’s large, but understudied ethnic minority areas. Exploiting the income-based MLSA eligibility rule as an instrument, fuzzy RD estimates reveal that MLSA subsidy receipt significantly increases the likelihood that complier households participate in rural–urban migration, a finding that is robust to a batter of sensitivity tests and checks for robustness. In line with the idea that MLSA cash subsidies help to loosen household credit or risk constraints, I show that the observed positive effects are driven mainly by poor [ethnic minority] households that face relatively high perceived migration costs. Additional evidence shows that the MLSA program increases complier households’ disposable income and consumption despite having no significant effect on household investment behavior. The main findings suggest that a small cash infusion from a minimum income program like MLSA helps to promote migration-led urbanization and rural household wellbeing.