Education and allocative efficiency household income growth during rural reforms in China

This paper studies the contribution of schooling to rural income in China during factor market liberalization between 1986 and 1995. The relaxation of controls permitted farm households to reallocate productive inputs from agriculture to nonagricultural activities. It is hypothesized that education facilitates this adjustment. Panel data from Sichuan province suggest that schooling enhanced the ability of farmers to devote labor and capital to nonfarm production given the evidence that less-than-optimum levels of these inputs were allocated to nonagricultural uses. During the transition, the expansion of nonfarm activities contributed significantly to household income growth. (C) 2004 Elsevier B.V. All rights reserved.