The Externalities of Human Capital on Rural-Urban Migration: Entrepreneurship or Migrant Networks?

Huaqing Tan, Peking University
Yi Zhou, University of California, Berkeley

In this paper, we use data from the 2002 Chinese Household Income Project Survey (CHIPS) to explore whether human capital has externalities on behaviors of rural-urban migration. In general, we find human capital externalities have a positive effect on migration, which is in contrast to the findings of a previous study by Liu (2008). Further, two hypotheses are put forward: first, education may promote entrepreneurship, increasing job opportunities locally (entrepreneurship externality); second, an educated migrant worker has more power to help his or her relatives and friends find jobs in cities (social-network externality). Both hypotheses are supported by evidence. Due to the relative stagnation of the Township and Village Enterprises in China after the mid-1990s, the positive effects of the “social-network externality” outweigh the negative effects of the “entrepreneurship externality.”