Institut für Agrarpolitik und Landwirtschaftliche Marktlehre

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A utility function based approach towards the modeling of migration in village equilibrium models
(2010) Kleinwechter, Ulrich
Village equilibrium models are computable general equilibrium (CGE) implementations of agricultural household models in a village equilibrium framework which have the salient feature of being able to capture general equilibrium effects arising at the level of rural communities. Due to the important role migration plays for livelihoods in developing countries, the approach has been successfully applied to analyze aspects related to migration and village economies. However, the depiction of migration in village equilibrium models is not carried out in a way that captures interactions between migration and household consumption demand while at the same time allows for an endogenous adjustment of the level of migration by the households themselves. Furthermore, approaches to modeling migration are purely demand side oriented. Supply side factors, such as differences between households, which may influence household responses to changes in incentives to migrate, cannot be accommodated in a theoretically convincing manner. To address these issues, a nonseparable household model with endogenous migration decisions and feedback to the consumption sphere is proposed as the theoretical foundation for a village equilibrium model. A composite utility function captures utility which accrues to the household through per capita household consumption of goods and leisure, on the one hand, and utility stemming directly from participation in different activities by the household including migration, on the other hand. It is shown that the allocation of labor among different activities is governed by the size of marginal returns to labor in terms of market returns, changes in household demand and (dis)utility of labor market participation relative to the household shadow wage. The practical implementation of the theoretical framework is achieved by the derivation of two independent demand systems from the composite utility function. A per capita linear expenditure system is proposed to depict household consumption demand. The allocation of labor to migration is assumed to follow a factor demand specification using power functions which translate utility considerations made by the household into imperfectly elastic responses to changes in incentives for participation in the labor market.
Village level impacts of trade reform in China
(2011) Kleinwechter, Ulrich; Grethe, Harald
During the past decades, China has carried out ambitious economic reforms. The reforms have resulted in strong economic growth and considerable reductions in poverty. The current situation, however, is also characterised by rising tensions within the country, caused, among others, by rural-urban and inland-coastal disparities. In this situation, rural-urban migration occupies central stage, both for the livelihoods of rural households and for the outcome of further policy reforms. In this context, trade liberalisation for a number of reasons can be expected to play an important role for the future development of poverty and inequality in the country. Against this background, the present work analyses and assesses the impacts of further trade liberalisation efforts on a rural community in south-western China. Recognising the importance of these issues, emphasis is put on poverty, inequality and rural-urban labour migration. Subject of the analysis is a village located in one of the less developed counties of Guizhou province. Thereby, this village level case study aims not only at shedding light on the impacts of future trade reforms on this particular village, but also has the objective of providing more general insights into the mechanisms which are at work when trade policies are brought down to a local level. The study seeks to promote an enhanced understanding of relevant processes in similar settings, allowing for improved assessments in the field of development oriented trade policy analysis. The objectives of the study are achieved by the application of a village computable general equilibrium model embedded into a macro-microsimulation framework. In this framework, aggregate results from a national level CGE study of unilateral trade liberalisation in China are administered as a policy shock to the village model, which offers a highly disaggregated picture of the village economy and allows for a detailed analysis of the impacts of the reform. The village model which is a CGE representation of the village economy forms the core part of the present study. The households which make up the village community are depicted by six representative household groups, each of them represented by an agricultural household model. The six groups stratify the village population by household demographics and income levels, thus distinguishing the households by their migration behaviour and by relative poverty. Each representative household can carry out up to four productive activities: agriculture, formal and informal local off-farm work as well as migration. Agricultural production is modelled with a nested Leontief-Cobb-Douglas technology. Household consumption is represented by a per-capita LES which includes self-consumption of agricultural output, purchased goods as well as leisure. By incorporating the assumption of a perfectly neoclassical village land market, the model makes a step towards the modelling of land rental transactions which take place within the village. The land market links the households together and creates local general-equilibrium effects which greatly affect the outcome of the policy reform. The salient feature of the village model is a novel approach towards the modelling of the households' labour allocation behaviour, and in particular the migration behaviour. The approach takes into account household preferences towards work in different types of employment as well as feedback links between household migration and consumption demand. This is achieved by the assumption of a composite utility function, which defines the behaviour of each household in the model. The composite utility function consists of a consumption utility function, which captures utility created by commodity consumption, and a labour utility function, which allows to account for the utility or disutility associated with the participation in different types of employment. By considering the disutility arising from certain employment options, the current work offers an important contribution to the methodological development of agricultural household and village equilibrium modelling. It provides a modelling framework, which paves the way for similar applications in different settings and opens an interesting field for future applications, which may also extend to levels of higher regional aggregation. At the same time, the model constitutes a highly valuable tool for the analysis of the migration behaviour of rural households under different policy scenarios along the lines of household demographics and income levels. Thereby, the availability of transparent information on socio-economic characteristics of the household groups, the remittances behaviour as well as the disutility connotations of migration offer great support to such efforts. Not least, it allows deriving theoretically sound hypotheses on the migration behaviour of rural households in different policy situations.

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