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The effect of migration policy on growth, structural change, and regional inequality in China

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  • Hao, Tongtong
  • Sun, Ruiqi
  • Tombe, Trevor
  • Zhu, Xiaodong

Abstract

Between 2000 and 2015, China’s aggregate income quadrupled, its provincial income inequality fell by a third, and its share of employment in agriculture fell by a half. Internal migration is central to this transformation, with the number of internal migrant workers reaching 300 million by 2015. Combining rich data on migration with a spatial general equilibrium model of China’s economy, we quantify the size and the impact of internal migration cost reductions in China between 2000 and 2015. During the 15-year period, China’s internal migration costs fell by forty-five percent. In addition to contributing substantially to growth, these migration cost changes account for the majority of the reallocation of workers out of agriculture and the drop in regional inequality. We compare the effect of migration policy changes with other important economic changes, including changes in trade costs, capital market distortions, average cost of capital, and productivity. While each contributes meaningfully to growth, migration policy changes are central to China’s structural change and regional income convergence. We also find that the recent slow-down in aggregate economic growth between 2010 and 2015 is associated with smaller reduction in inter-provincial migration costs and a larger role of capital accumulation.

Suggested Citation

  • Hao, Tongtong & Sun, Ruiqi & Tombe, Trevor & Zhu, Xiaodong, 2020. "The effect of migration policy on growth, structural change, and regional inequality in China," Journal of Monetary Economics, Elsevier, vol. 113(C), pages 112-134.
  • Handle: RePEc:eee:moneco:v:113:y:2020:i:c:p:112-134
    DOI: 10.1016/j.jmoneco.2020.03.003
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    Cited by:

    1. Ma, Xiao, 2020. "College Expansion, Trade and Innovation: Evidence from China," MPRA Paper 109469, University Library of Munich, Germany.
    2. Holger Sieg & Chamna Yoon & Jipeng Zhang, 2020. "The Impact of Migration Controls on Urban Fiscal Policies and the Intergenerational Transmission of Human Capital in China," NBER Working Papers 27764, National Bureau of Economic Research, Inc.
    3. Qingen Gai & Naijia Guo & Bingjing Li & Qinghua Shi & Xiaodong Zhu, 2021. "Migration Costs, Sorting, and the Agricultural Productivity Gap," Working Papers tecipa-693, University of Toronto, Department of Economics.

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    More about this item

    Keywords

    Migration; Spatial misallocation; Regional convergence; Structural change; China;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F1 - International Economics - - Trade
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • J4 - Labor and Demographic Economics - - Particular Labor Markets
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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