# **3 Data descriptions**

In this paper, we use the data from China’s LSMS, which was conducted in July 1995 and July 1997 in two provinces: Hebei and Liaoning.<sup>11</sup> The survey includes information from 787 rural households, which were selected from a total of 31 sample villages of 15 towns or townships in 6 counties. Although the sample size is limited, the LSMS employs standardized sampling techniques on household selection and offers a satisfactory sample for in-depth studies.<sup>12</sup> The sample can be considered a rough approximation of the rural population in Hebei and Liaoning.<sup>13</sup> Compared with other survey data, which can merely serve for descriptive analysis, the LSMS data have significant advantages. To our knowledge, the LSMS is the most detailed and professional survey of rural households in China in recent years.

Rural household income consists of two major parts: farm income and non-farm income. The farm sector includes agriculture, livestock, forestry, fishing, and hunting. The non farm “sector” includes all economic activities in rural areas except the above farm activities.<sup>14</sup> Formal or informal wage-paying income and self-employment income are the two major sources of nonfarm income.<sup>15</sup> Among the 787 households in the sample, 205 received only farm income, 537 both farm income and non-farm income, 38 only non-farm income, and 7 neither farm income nor non-farm income.<sup>16</sup> To focus the study on farm income and non-farm income, we exclude the households that do not have farm income (which represents about 5% of the total sample), and take “the income from other sources” out of total income of the household in the econometric analysis by considering this income as exogenous.<sup>17</sup> Table 1 describes the sample characteristics of the remaining 742 households.

> 11 In 1996, the GDP per capita of these Liaoning and Hebei ranked 8th and 12th respectively among the 30 provinces in China.

> 12 The LSMS is designed to provide a comprehensive picture of household welfare and the factors that affect it. In order to minimize non-sampling error and ensure high quality data, the samples of the LSMS are relatively small. Substantial efforts and resources, including long interviewer trainings, use of direct informants, concurrent data entry with in-field corrections taking place at the households, and low supervisor-interviewer ratios, are devoted to enhance data quality. See Munoz and Scott (2005).

> 13 See “China Living Standards Survey 1995-1997: Basic Information Document”, http://www.worldbank.org/lsms/, for further information on the survey data.

> 14 See Lanjouw and Lanjouw (2001).

> 15 In rural China, households work on small plots of cultivable land.  In general, no households need to hire extra labor. Income earned from agricultural wage employment is limited.

> 16 Some households have incomes from non-productive activities, such as pensions, transfers, grants/subsidies, financial income, etc.

> 17 Among the 45 households that do not have farm income, 70% of them do not have land; among the remaining 30% households that have land, most of them have less than 2.5 _mu_ (compared to 10.5 _mu_ in average for the 742 households with farm income in the sample). The members of these households work as village teachers, village

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