Leaving the Land, but not Their Hometown? Public Trust and Labor Migration in Rural China Ming Lu and Shuang Zhang Department of Economics, ESSRC and CCES Fudan University

Questions How does public trust change during economic transition? 1.Does labor migration impact public trust in rural China? 2.Does public trust determine labor migration in rural China?

Motivation (I) Explore into the mechanism how marketization impacts public trust Household-level: Labor migration erodes local trust (Miguel et al., 2006). Community-level: Income inequality might destroy public trust ( Alesina and Ferrara, 2000 ). Province-level: Public trust falls and then rises during marketization, showing a U-shape (Sztompka, 1999).

Motivation (II) Challenges on explaining public trust-labor migration relationship in China Endogeneity problems in estimating public trust-labor migration relationship:  Omitted-Variable  Reverse causality “Chinese style” labor migration:  Urban-biased policies  Discrimination from city  Short-term migration

Literature Review (I) Public Trust: trust to public institutions Process-based trust (Zucker, 1986) Based on repeated transaction, this form of public trust is sustained by social interaction between individuals and staffs in public institutions.

Literature Review (II) Household-level: Trust-labor migration relationship 1.Labor migration impacts trust: Migration at community level decreases trust (Alesina and Ferrara, 2000) Labor migration erodes local trust during industrialization (Miguel et al, 2006) Trust inside immigration community increases as outside discrimination increases (Portes, 1993) 2.Trust impacts labor migration? Few economic literature Trust can form an informal institution to reduce risk (Fukuyama, 1995; 2000) Risk impedes labor migration (Todaro, 1969; Zhao, 1999) 3.Endogeneity problem: unsolved in existing literature (Alesina and Ferrara, 2000; Miguel et al, 2006)

Literature Review (III) Community and Macro levels: 1.Community-level: Theoretical studies: Trust cannot be built in a highly stratified and unequal society (Putnam, 1993; Fukuyama, 1995) Empirical studies: Income inequality might decrease public trust (Alesina and Ferrara 2000) 2. Macro-level: Evidence from economic transition in Poland: Public trust changes as a U-shape during marketization (Sztompka, 1999).

Literature Review (IV) What else determine public trust? Cole (1973) and Mishler and Rose (2001) Individual characteristics; socioeconomic environment; and efficacy of public institutions Alesina and Ferrara (2000)  Individual characteristics: income; education; historical misfortune; belong to a discriminated group.  Community characteristics: income inequality; racial and ethnic heterogeneity; migration.

Literature Review (V) Why public trust attracts our interest? Trust attracts wide attention  Trust raises growth (Knack and Keefer, 1997; Zak and Knack, 2001)  Trust works by promoting cooperation and decreasing transaction cost, to address failures of formal institution (Fukuyama, 1995; 2000) Public trust plays an important role in poverty reduction in rural China, and its effect doesn't be weakened during marketization (Zhang, Lu and Zhang, 2006).

Contributions 1.This is the first study exploring into how marketization impacts public trust on three different levels: household, community and province level, showing a whole picture on the effect of marketization on public trust in rural China. 2.Endogeneity problems have been addressed by instrument variables. In addition, the two-way relationship of public trust and labor migration has been confirmed.

Data Main source: China Rural Survey 2004 conducted by Fudan University, covering 22 provinces, 48 villages, 938 households and 2755 workers in 2003  Measurement of public trust: How do you trust on staffs in local government at county and township level, local justice system and education institution, respectively? Data of marketization index: China Marketization Index (2002) (Gang Fan, Xiaolu Wang, 2004)

Identification Framework Equation (1): Determinants of Public Trust Equation (2): Determinants of Labor Migration  IV for migration: land  IV for public trust: Is household head a party member?

Result of Equation (1): Determinants of public trust

Result of Equation (2): Determinants of labor migration

Conclusions 1.In rural China, labor migration at community level increases local public trust, while local public trust at community level reduces labor migration. 2.Income inequality erodes public trust (not robust). 3.Public trust falls and then rises in the marketization process, showing a U-shape.

Further Discussion Leaving the land, but not their hometown? Do rural workers lose public trust towards city under discrimination? Is public trust raised in regions with high marketization level different from traditional public trust?

Thank you!