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A numerical simulation analysis of (Hukou) labour mobility restrictions in China

Listed author(s):
  • Whalley, John
  • Zhang, Shunming

AbstractWe use numerical simulation methods to analyze the Hukou system of permanent registration in China which many believe has supported growing relative inequality over the last 20 years by restraining labour migration both between the countryside and urban areas and between regions and cities. Our aim is to inject economic modelling into the debate on sources of inequality in China which thus far has been largely statistical. We first use a model with homogeneous labour in which wage inequality across various geographical divides in China is supported solely by quantity-based migration restrictions (urban–rural areas, rich–poor regions, eastern-central and western (non-coastal) zones, eastern and central-western development zones, eastern–central–western zones, more-disaggregated six regional classifications, and an all-31 provincial classification). We calibrate this model to base case data and when we remove migration restrictions all wage and most income inequality disappears. Results from this model structure points to a significant role for Hukou restrictions in supporting inequality in China. We then present a further model extension in which urban house price rises retard rural–urban migration. The impacts of removing Hukou restrictions on migration are smaller, but are still significant. Finally, we modify the model to capture labour productivity differences across regions, calibrating the modified model to estimates of both national and regional Gini coefficients. Removal of migration barriers is again inequality improving but less so.

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Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 83 (2007)
Issue (Month): 2 (July)
Pages: 392-410

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Handle: RePEc:eee:deveco:v:83:y:2007:i:2:p:392-410
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  1. Chen, Jian & Fleisher, Belton M., 1996. "Regional Income Inequality and Economic Growth in China," Journal of Comparative Economics, Elsevier, vol. 22(2), pages 141-164, April.
  2. Hare, Denise & West, Loraine A., 1999. "Spatial Patterns in China's Rural Industrial Growth and Prospects for the Alleviation of Regional Income Inequality," Journal of Comparative Economics, Elsevier, vol. 27(3), pages 475-497, September.
  3. Hamilton, Bob & Whalley, John, 1984. "Efficiency and distributional implications of global restrictions on labour mobility : Calculations and policy implications," Journal of Development Economics, Elsevier, vol. 14(1), pages 61-75.
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  7. Rozelle Scott, 1994. "Rural Industrialization and Increasing Inequality: Emerging Patterns in China's Reforming Economy," Journal of Comparative Economics, Elsevier, vol. 19(3), pages 362-391, December.
  8. Sen, Amartya, 1973. "On Economic Inequality," OUP Catalogue, Oxford University Press, number 9780198281931.
  9. Xuejin Zuo & Feng Wang, 1999. "Inside China's Cities: Institutional Barriers and Opportunities for Urban Migrants," American Economic Review, American Economic Association, vol. 89(2), pages 276-280, May.
  10. Yaohui Zhao, 1999. "Leaving the Countryside: Rural-to-Urban Migration Decisions in China," American Economic Review, American Economic Association, vol. 89(2), pages 281-286, May.
  11. Kanbur, Ravi & Zhang, Xiaobo, 1999. "Which Regional Inequality? The Evolution of Rural-Urban and Inland-Coastal Inequality in China from 1983 to 1995," Journal of Comparative Economics, Elsevier, vol. 27(4), pages 686-701, December.
  12. Chang, Gene H., 2002. "The cause and cure of China's widening income disparity," China Economic Review, Elsevier, vol. 13(4), pages 335-340, December.
  13. Tsui Kai-yuen, 1993. "Decomposition of China's Regional Inequalities," Journal of Comparative Economics, Elsevier, vol. 17(3), pages 600-627, September.
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