Retesting the Separability of China's Rural Households

Abstract

AbstractThis article retests the separability of China's rural households in light of growing doubt about the sustainability of high economic growth in China. If a household's production decisions are “separable” from the household's consumption decisions, generally this suggests there is no surplus labor. Many scholars aver that China's surplus rural labor has spurred rapid economic growth, but concerns have arisen as to whether China still has surplus labor available. We investigate this issue using rural household panel data from 1993 to 2009 The regression results confirm that households in rural China have progressed from being non‐separable to separable. The estimation results for both the entire country and regions reject the separability hypothesis before 2004 but fail to reject the hypothesis after 2004 (with the exception of the central region). These results suggest that China's surplus labor supply is dwindling, especially in the eastern and the western regions. The sustainability of China's high economic growth is questionable in the absence of a large reservoir of surplus rural labor.