The Rise of Self-Employment in Rural China: Development or Distress?

SummaryThis paper evaluates the role of self-employment in China’s rural economy, while paying attention to whether the rise of self-employment promotes entrepreneurship and is a sign of development, or whether it is a stopover for disadvantaged workers and a sign of distress. Using data on 20-year labor market histories of a nationally representative sample of individuals, we provide descriptive evidence that self-employment in rural China, unlike in some other places, is a sign of development. Econometric evidence from a random-effects probit model and a continuous-time Markov model shows also that self-employment in rural China shares many features of a productive small-business sector.