Remittances and relative concerns in rural China

- We estimate subjective well-being regressions, which include relative concerns with respect to both income and remittances.
- Rural households lose welfare when they compare their income with that of their reference group, but gain well-being by comparing their remittances.
- Policy aiming to improve rural households' welfare should contrast relative concerns with respect to rural income and remittances.

The paper investigates the impact of remittances on the relative concerns of households in rural China. Using the Rural to Urban Migration in China (RUMiC) dataset we estimate a series of subjective well-being functions to simultaneously explore relative concerns with respect to income and remittances. Our results show that although rural households experience substantial welfare loss due to income comparisons, they gain well-being by comparing their remittances with those received by their reference group. In other words, we find evidence of a “status effect” with respect to income and of a “signal effect” of similar magnitude with respect to remittances. This finding is robust to various specifications, alternative reference group definitions, controls for the endogeneity of remittances and selective migration, as well as the use of migrants' net contribution to household income.