When a Son is Born: The Impact of Fertility Patterns on Family Finance in Rural China

Sunday, February 1, 2009

This paper examines the impact of an observable shock to households in rural China, the offspring gender structure, on household financial activities. We develop theoretical channels that endogeneously generate heterogeneity in the levels of financial activities on the basis of a child’s gender, even if the parents do not possess discriminatory tastes. Using nationally representative household data collected in 300 rural Chinese villages and econometric models that account for endogenous fertility and sex selection, we present strong evidence that having a son significantly increases both the amounts that a family will loan or give to relatives as well as increase the amounts of gifts they receive from others. Having a son increases the amount of gifts received from others by over 50% and is also found to increase household investments in both agricultural activities and family businesses. Finally, we present evidence that these family structure variables should not be treated as exogenous and demonstrate the robustness of our results to a number of criteria used for sample construction, specification and to account for alternative selection biases. Taken together these results suggest that social norms or convention play important roles in household financial decisions that extend beyond the traditional role of budget constraints and consumption shocks. This has clear implications for policies that aim to address rising sex imbalance amid economic growth and discriminating investment to female children in developing countries.

Weili Ding

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