Large numbers of agricultural labor moved from the countryside to cities after the
economic reforms in China. Migration and remittances play an important role in transforming
the structure of rural household income. This paper examines the impact of rural-to-urban
migration on rural poverty and inequality in the case of Hubei province using the data of a
2002 household survey. Since remittances are a potential substitute of farm income, we
present counterfactual scenarios of what rural income, poverty, and inequality would have
been in the absence of migration. Our results show that, by providing alternatives to
households with lower marginal labor productivity in agriculture, migration leads to an
increase in rural income. In contrast to many studies that suggest the increasing share of nonfarm
income in total income widens inequality, this paper offers support for the hypothesis
that migration tends to have egalitarian effects on rural income for three reasons: (i) migration
is rational self-selection – farmers with higher agricultural productivities choose to remain in
local agricultural production while those with higher expected return in urban non-farm
sectors migrate; (ii) poorer households facing binding constraints of land shortage are more
likely to migrate; (iii) the poorest poor benefit disproportionately from remittances.