Pursuing a brighter future: Impact of the Hukou reform on human capital investment in migrant children in China

China's Hukou system, established in 1958, institutionalized social welfare disparities. This study examined the impact of China's Hukou reform—an institutional change initiated in 2014 that aimed to gradually expand the coverage of basic social benefits from the local Hukou population to the entire resident population—on the education expenditures of migrant households and the human capital development of migrant children using panel data from the China Family Panel Survey from 2012 to 2018. Drawing on regional variations in the pace of the reform, we applied the difference-in-differences method, and found that the reform significantly increased the investment in education for migrant households, with the increase mainly arising from in-school expenditures (with the exception of sponsorship fees) rather than from off-school expenditures. The analysis of the underlying mechanism shows that, first, although the reform has expanded the access to public education for migrant children, the local governments did not invest more in public education following the reform (substitution effects). Second, the Hukou reform appears to have eliminated resource discrimination and improved quality within the public education system, which increases migrant families' expectations for their children's education; this also prompts them to increase their in-school education expenditures to improve the quality of their children's education (flypaper effects). Finally, increases in migrant family income also play a role (income effects). Our study has strong practical implications for policymakers, who need to sustain the supply of human capital for economic development by providing education to migrant children, while moderating the effects of social welfare reforms to reduce possible governance risks.