Relaxing Hukou - Increased Labor Mobility and Chinaâ€™s Economic Geography
Chinaâ€™s Hukou system poses severe restrictions on labor mobility. This paper assesses the consequences of relaxing these restrictions for Chinaâ€™s internal economic geography. We base our analysis on a new economic geography model. First, we obtain estimates of the important model parameters on the basis of information on 264 of Chinaâ€™s prefecture cities over the period 1999-2005. Second, and by using our estimation results as input, we simulate various long-run scenarios of Chinaâ€™s internal economic geography that differ in their degree of interregional labor mobility. We find that increased labor mobility will lead to more pronounced core-periphery outcomes. Interestingly, these agglomerations are not necessarily along the coastal regions. Given the increased importance of Chinaâ€™s internal market, firms agglomerate in the populous heartland of China. Chinaâ€™s internal demand will be the most important determinant of its future economic geography.
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