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The Rural Investment Climate : Analysis and FindingsInterest in investment climates has emerged relatively recently. In the 1960s and 1970s, governments in many countries believed they should play a direct role in rural credit, input supply, production, trade, transport, distribution, and even marketing. However, in the 1980s and 1990s, government-dominated systems fell into disgrace because of poor performance. For the rural sector, the primary focus had traditionally been on agriculture, particularly commercial agriculture and agribusiness, which were perceived to be the main drivers of rural growth. This study's essential findings and policy implications are organized into the following six chapters. Annexes provide supporting material. Chapter two presents an overview of related work and of the literature; it also describes the subsequent chapters' methodological framework, including new ways of addressing questions of endogeneity in these kinds of surveys while seeking to isolate cause and effect. Chapter three, by applying econometric analysis, measurably extends the examination of enterprise performance and investment climate constraints initiated in RIC1 (first rural investment climate). A rigorous examination of enterprise dynamics and entrepreneurial choice is developed in chapter four. Aiming to highlight the differing effects on Rural Nonfarm Enterprises (RNFEs), chapter five draws together the main implications RIC2 findings on the rural investment climate in the three country pilots. Community-level influences also matter, and chapter six examines how the local IC and other community characteristics shape the environment for economic activity. Conclusions and recommendations appear in chapter seven, including suggestions for using RIC results for policy reform and for targeting the rural public expenditures needed to foster improvements in the rural investment climate. The annexes describe the databases employed and the methodologies used in the study, as well providing detailed regression results.
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The Impact of Remittances on Rural Poverty and Inequality in ChinaLarge numbers of agricultural labor
 moved from the countryside to cities after the economic
 reforms in China. Migration and remittances play an
 important role in transforming the structure of rural
 household income. This paper examines the impact of
 rural-to-urban migration on rural poverty and inequality in
 the case of Hubei province using the data of a 2002
 household survey. Since remittances are a potential
 substitute for farm income, the paper presents
 counterfactual scenarios of what rural income, poverty, and
 inequality would have been in the absence of migration. The
 results show that, by providing alternatives to households
 with lower marginal labor productivity in agriculture,
 migration leads to an increase in rural income. In contrast
 to many studies that suggest the increasing share of
 non-farm income in total income widens inequality, this
 paper offers support for the hypothesis that migration tends
 to have egalitarian effects on rural income for three
 reasons: (i) migration is rational self-selection - farmers
 with higher agricultural productivities choose to remain in
 local agricultural production while those with higher
 expected return in urban non-farm sectors migrate; (ii)
 poorer households facing binding constraints of land
 shortage are more likely to migrate; and (iii) the poorest
 poor benefit disproportionately from remittances.
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Rising Income Inequality in China : A Race to the TopIncome inequality in China has risen
 rapidly in the past decades across regions, between rural
 and urban sectors, and within provinces. The dynamics of
 divergence across these sub-national areas have taken the
 form of a "race to the top" - meaning that all
 segments of the population, including the poor with low
 education in lagging inland rural areas, have experienced
 gains in average income. The largest gains have been
 registered by those with higher income and education in
 leading coastal urban areas. Using the China Economic,
 Population, Nutrition and Health Survey data of 1989 and
 2004, we show that the most important factors explaining
 overall inequality are differential returns to schooling and
 sector of employment. A decomposition analysis based on
 household income determination shows that the increase in
 returns to education explains two-thirds of income changes
 in urban areas and one-sixth in rural areas. The widening
 income gaps are the consequence of higher growth in leading
 urban and coastal areas and that the skilled population has
 benefited more from the economic reforms carried out during
 the last 25 years. The authors argue that rising income
 inequality can be part of a normal process of development at
 a certain stage, and that the dynamics of spatial income
 divergence in the form of "a race to the top" can
 be desirable to some extent as it unleashes competitive
 pressure and creates incentives for investment in skills.
 Continuing to improve market efficiency and investing in
 people, in particular improving education service in lagging
 areas to poor people, are important for sustainable growth
 and equitable distribution in the long run.