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How Migration Restrictions Limit Agglomeration and Productivity in China

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  • Chun-Chung Au
  • Vernon Henderson

Abstract

China strongly restricts rural-rural, urban-urban, and rural-urban migration. The result which this paper documents is a surplus of labor in agriculture. However, the paper argues that these restrictions also lead to insufficient agglomeration of economic activity within both rural industrial and urban areas, with resulting first order losses in GDP. For urban areas the paper estimates a city productivity relationship, based on city GDP numbers for 1990-97. The effects of access, educational attainment, FDI, and public infrastructure on productivity are estimated. Worker productivity is shown to be an inverted U-shape function of city employment level, with the peak point shifting out as industrial composition moves from manufacturing to services. As far as we know this is the first paper to actually estimate the relationship between output per worker and city scale, as it varies with industrial composition. The majority of Chinese cities are shown to be potentially undersized - below the lower bound on the 95% confidence interval about the size where their output per worker peaks. The paper calculates the large gains from increased agglomeration in both the rural industrial and urban sectors. It also examines the effect of capital reallocations, where the rural sector is grossly undercapitalized.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8707.

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Date of creation: Jan 2002
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Publication status: published as Au, Chun-Chung and J. Vernon Henderson. "How Migration Restrictions Limit Agglomeration And Productivity In China," Journal of Development Economics, 2006, v80(1,Jun), 350-388.
Handle: RePEc:nbr:nberwo:8707

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  1. J.V. Henderson, 1972. "The Sizes and Types of Cities," Working Papers 75, Queen's University, Department of Economics.
  2. Marshall, Alfred, 1890. "The Principles of Economics," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, McMaster University Archive for the History of Economic Thought, number marshall1890.
  3. Duncan Black & Vernon Henderson, 2003. "Urban evolution in the USA," Journal of Economic Geography, Oxford University Press, vol. 3(4), pages 343-372, October.
  4. Yang, Dennis Tao & An, Mark Yuying, 2002. "Human capital, entrepreneurship, and farm household earnings," Journal of Development Economics, Elsevier, vol. 68(1), pages 65-88, June.
  5. Chun-Chung Au & Vernon Henderson, 2002. "How Migration Restrictions Limit Agglomeration and Productivity in China," NBER Working Papers 8707, National Bureau of Economic Research, Inc.
  6. Simon J. Evenett & Wolfgang Keller, 1998. "On Theories Explaining the Success of the Gravity Equation," NBER Working Papers 6529, National Bureau of Economic Research, Inc.
  7. Giles Duranton & Diego Puga, 2003. "Micro-Foundations of Urban Agglomeration Economies," NBER Working Papers 9931, National Bureau of Economic Research, Inc.
  8. Lin, Justin Yifu, 1992. "Rural Reforms and Agricultural Growth in China," American Economic Review, American Economic Association, vol. 82(1), pages 34-51, March.
  9. Jordan Rappaport, 1999. "Why are population flows so persistent?," Research Working Paper, Federal Reserve Bank of Kansas City 99-13, Federal Reserve Bank of Kansas City.
  10. Jordan Rappaport & Jeffrey D. Sachs, 2001. "The U.S. as a coastal nation," Research Working Paper, Federal Reserve Bank of Kansas City RWP 01-11, Federal Reserve Bank of Kansas City.
  11. Mueser Peter R. & Graves Philip E., 1995. "Examining the Role of Economic Opportunity and Amenities in Explaining Population Redistribution," Journal of Urban Economics, Elsevier, vol. 37(2), pages 176-200, March.
  12. Putterman, Louis & Chiacu, Ana F., 1994. "Elasticities and factor weights for agricultural growth accounting: A look at the data for China," China Economic Review, Elsevier, vol. 5(2), pages 191-204.
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