Abstract
By employing an analytical framework based on institutional economics, this paper intends to investigate the rural urban income gap and its critical points for change. The level of rural urban income gap in 1978 broke the institutional equilibrium on which the traditional rural urban relationship relied, leading to overall reform in rural China. In the post-reform period, utilizing their superior influence on policy-making, urban residents have so far succeeded in maintaining urban biased government policies, deterring rural labor from migrating to cities permanently. The urban residents’ major lobbying mechanism is through their “vote” and “voice”, something in which their rural counterparts are lacking. However, farmers have a way to “get around” the urban biased policies which are unfavorable to them. This “voting with their feet” eventually will drive the policy change. When the rural urban income gap increases to the level of 1978, a critical point for institutional change will have been reached. The timing and conditions will be ripe for reform of the whole policy package on which the present rural urban divide has been built.
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Notes
For example, Knight et al. (1999) combined the Lewis model with a price-scissor model to expain how the distorted policies of rural-urban relationship result in the rural urban divide, under an economy with unlimited labor supply.
By using a computable general equilibrium model, Anderson (1995) found that even without the difference in transaction costs between farmers and urban classes while lobbying for policy favors, different relative incentives of farmers versus urban people can sufficiently explain the policy intentions at various stages of development. On the one hand, in poor countries where agriculture is taxed, potential benefit from farmers’ and their agents’ activities seeking agricultural protection policies and opposing industrial protection policies is only one nineth to one sixth the benefits gained by their corresponding groups in industrialized countries, where agriculture is protected. In contrast to this, industrialists and their agents in poor countries have over 10 times the incentives to seek a policy package that subsidizes industry and taxes agriculture relative to their counterparts in rich countries. On the other hand, the benefits brought to industrialists from taxing agriculture and subsidizing manufacturing are 10 times and 5 times the loss that the policies imposed on farmers in poor countries and richer countries, respectively.
Hirschman (1970) first used the terminology “exit” to express the reaction when people dislike the incentive mechanism they face.
So-called turbulent events refer to those situations in which individuals or groups collectively act in an abnormal way when they cannot reach their goals by acting in a normal way. Those abnormal actions include, for example, public demonstration, destruction of machinery, collective appeal to the higher authorities for help and strikes (see LSI of MOLSS, 2000).
Tiebout (1956) first used the expresion “vote with their feet” to refer to the migraton caused by disatisifaction of residents with public services in a community, while Chan (see Far Eastern Economic Review, 2003 ) applies this concept to explain the incentives motivating Chinese farmers to migrate to cities.
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Cai, F. Rural urban income gap and critical point of institutional change. Econ Change 40, 189–206 (2007). https://doi.org/10.1007/s10644-007-9009-1
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DOI: https://doi.org/10.1007/s10644-007-9009-1