Urban development in China: On the sorting of skills

For advanced economies, it is a well-established stylized fact that large cities are relatively skill abundant. For emerging markets, like China, this relationship is less well established. We show, using recently developed tests, that also in China higher skills sort into larger locations. This sorting process is consistent with the comparative advantage of cities. We identify two types of spatial units (Core-Cities and Extended-Cities) and analyse sorting for three types of skills (education skills, sector skills, and occupation skills). The sorting process across cities is stronger for Core-Cities than for Extended-Cities, stronger for education skills than for sector- and occupation skills, and stronger for 2010 than for 2000. We interpret these results as an indication that investments in, for example, infrastructure and institutional liberalization (such as the relaxation of the Hukou system), stimulates sorting of higher skills in larger cities.