Migration, Liquidity Constraints, and Income Generation: Evidence from Randomized Credit Access in China

With full labor mobility, microcredit may finance production inputs that increase household labor demand and reduce migration. However, when migration is constrained by liquidity, access to credit may increase both migration and household business activity, yielding greater potential income gains. This study empirically examines the impacts of credit access on migration using data from a randomized control trial for a village banking intervention in poor villages in rural China. Consistent with theoretical predictions, I find that the program increases migration by members of treated households, in particular for households in villages with lower average assets and facing higher migration costs. ∗I deeply appreciate the supervision and support of Albert Park. Part of the research was done while I was visiting the University of Michigan, Ann Arbor, which I thank for the hospitality. I thank Manuela Angelucci, Charlie Brown, Jing Cai, Joesph Kaboski, David Lam, David McKenzie, Imran Rasul, Jeffery Smith, Sujata Visaria, and Dean Yang for some very helpful comments and discussions, as well as participants at the Health, History, Demography, and Development (H2D2) seminar and Labor seminar at the University of Michigan, Royal Economic Society inaugural symposium of junior researchers at the University of Manchester, and the seminar at Georgetown Center for Economic Research at Georgetown University. All remaining errors are my own. †Department of Economics, the Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong. [email protected]. Most recent version is available here http://www.caishu.org/research.html.