Pushed out or pulled in? Participation in non-farm activities in rural China

Abstract

PurposeThe purpose of this paper is to identify the determinants of China’s rural households’ non-farm participation. The authors pay special attention to the effect of potential income differential on this participation.Design/methodology/approachThe data used in this study come from a household survey conducted in Hubei Province. The authors estimate participation equation and income equation, respectively, then introduce potential income differential simulated in participation equation to examine its effect on non-farm participation.FindingsPotential income differential serves as the major pull factor that favors non-farm participation. Education, proximity to a city and specialized commercial farming are crucial in helping rural households to participate in non-farm production; while the land shortage or the labor surplus act as the push factor in non-farm participation. Better quality of land reduces the household’s propensity to participate in non-farm activities. Moreover, the income gap between households that participate in non-farm activities and pure farmers is mainly determined by the differences in household characteristics.Originality/valueThe authors use the method of “switching regression and structural probit” to examine the impact of potential income differential on non-farm participation, and simulate the response of the participation probability to the change of potential income differential. The authors also analyze the sources of income gap between non-farm and farm households using Oaxaca decomposition.