MARKET ACCESS AND HOUSEHOLD WELFARE: EVIDENCE FROM RURAL CHINA
Open AccessAccess to markets is central to the current thinking on poverty alleviation and economic development. However, there is surprisingly little systematic empirical evidence that tries to isolate the effects of access to local and global markets on income and consumption, especially at the household level.My dissertation, using household survey data from rural China for 1995, presents empirical evidence on the causal effects of domestic and international market access on household per-capita consumption, on household per-capita income, on the probability that a household earns non-farm income, and on the levels of farm and non-farm income separately. To the best of my knowledge, this is the first work to analyze the effects of access to both domestic and international markets at the household level.The econometric analysis uses alternative identification schemes to address the potential endogeneity of access to markets. Motivated by the transport engineering literature, I exploit topography of the other counties along the linear distances to the markets as the source of exogenous variables. An alternative source of identification is achieved though the relationship between heteroskedastic error variances and exogenous regressors. The central conclusions from the empirical analysis can be summarized as: (i) better access to both domestic and international markets has positive effect on real per-capita income, farm income, non-farm income, and consumption, (ii) the domestic market effect is significantly larger in magnitude, (iii) the effect of domestic market access on non-farm income is larger than its effect on farm income, (iv) there is complementarity between the access to domestic and international markets, (v) better market access increases the probability that rural households participate in non-farm activities, (vi) better market access enhances the positive interdependence between farm income and non-farm activities.These conclusions are extremely robust. They survive a battery of checks including estimations with different sets of control variables, and restricted samples that exclude the villages that are closest to each market. The evidence thus indicates that the improving access to the domestic market should be accorded more prominence in any strategy for alleviating or ending rural poverty.
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