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Trade, Migration and Regional Income Differences: Evidence from China

Author

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  • Xiaodong Zhu

    (University of Toronto)

  • Trevor Tombe

    (University of Calgary)

Abstract

International trade is closely related to within-country trade and migration. To study these interrelationships, we develop a novel general equilibrium model of internal and external trade with migration, featuring both trade and migration frictions. We estimate these frictions using unique data on China's trade and migration; the costs are high, but declined after 2000. We quantify the consequences of lower trade costs (international and internal) and migration costs on welfare, internal migration, and regional income differences. External trade liberalization increases China's trade, but only modestly increases welfare while increasing regional income differences. Internal trade liberalization has large welfare gains and reduces regional income differences. Migration cost reductions dramatically increase migration and lower regional income differences but -- surprisingly -- only modestly increase trade and aggregate welfare, mainly because the migration costs remain very high. In a counterfactual exercise in which we lower the migration costs in China to the levels similar to those in the US, we find very large increases in both trade and aggregate welfare. Our results suggest internal reforms dominate external trade liberalization as a source of aggregate welfare gains and improvements in regional income inequality.

Suggested Citation

  • Xiaodong Zhu & Trevor Tombe, 2015. "Trade, Migration and Regional Income Differences: Evidence from China," 2015 Meeting Papers 1534, Society for Economic Dynamics.
    • Handle: RePEc:red:sed015:1534
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    References listed on IDEAS

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    Cited by:

    1. Li, Baoxi & Cheng, Shixiong & Xiao, De, 2020. "The impacts of environmental pollution and brain drain on income inequality," China Economic Review, Elsevier, vol. 62(C).
    2. Melanie Morten & Jaqueline Oliveira, 2016. "Paving the Way to Development: Costly Migration and Labor Market Integration," NBER Working Papers 22158, National Bureau of Economic Research, Inc.
    3. Pei-Ju Liao & Ping Wang & Yin-Chi Wang & Chong K. Yip, 2022. "Educational choice, rural–urban migration and economic development," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 74(1), pages 1-67, July.
    4. Anton Cheremukhin & Mikhail Golosov & Sergei Guriev & Aleh Tsyvinski, 2015. "The Economy of People’s Republic of China from 1953," NBER Working Papers 21397, National Bureau of Economic Research, Inc.
    5. Yuan Zi, 2016. "Trade Liberalization and the Great Labor Reallocation," IHEID Working Papers 18-2016, Economics Section, The Graduate Institute of International Studies.
    6. Li, Bingjing, 2018. "Export expansion, skill acquisition and industry specialization: evidence from china," Journal of International Economics, Elsevier, vol. 114(C), pages 346-361.
    7. Lorenzo Caliendo & Maximiliano Dvorkin & Fernando Parro, 2019. "Trade and Labor Market Dynamics: General Equilibrium Analysis of the China Trade Shock," Econometrica, Econometric Society, vol. 87(3), pages 741-835, May.
    8. Bryan, Gharad & Morten, Melanie, 2019. "The aggregate productivity effects of internal migration: evidence from Indonesia," LSE Research Online Documents on Economics 88177, London School of Economics and Political Science, LSE Library.
    9. Lou, Jing & Li, Jie, 2022. "Export expansion and intergenerational education mobility: Evidence from China," China Economic Review, Elsevier, vol. 73(C).
    10. Maximiliano Dvorkin & Fernando Parro & Lorenzo Caliendo, 2015. "The Impact of Trade on Labor Market Dynamics," 2015 Meeting Papers 1532, Society for Economic Dynamics.
    11. Yin-Chi Wang & Ping Wang & Chong Yip & Pei-Ju Liao, 2017. "Educational Choice, Rural-urban Migration and Economic Development: The Role of Zhaosheng in China," 2017 Meeting Papers 738, Society for Economic Dynamics.
    12. Guriev, Sergei & Cheremukhin, Anton & Golosov, Mikhail & Tsyvinski, Aleh, 2015. "The Economy of People’s Republic of China from 1953," CEPR Discussion Papers 10764, C.E.P.R. Discussion Papers.
    13. Zi, Yuan, 2020. "Trade Liberalization and the Great Labor Reallocation," CEPR Discussion Papers 14490, C.E.P.R. Discussion Papers.

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