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Urbanizing with Equity Consideration

Author

Listed:
  • Wan, Guanghua

    (Asian Development Bank Institute)

  • Luo, Zhi

    (Asian Development Bank Institute)

  • Zhang, Xun

    (Asian Development Bank Institute)

Abstract

Research has not yet been undertaken on the optimal level of urbanization, notwithstanding the pioneering work of Au and Henderson (2006) on optimal urban concentration. We develop two-sector general equilibrium models of urbanization, with and without equity consideration, respectively. It is shown that considering equity will result in a higher level of urbanization than otherwise, when urban inequality is sufficiently small or migration costs are sufficiently large. Such a theoretical prediction is confirmed by empirical modeling results using panel data from People’s Republic of China (PRC). Provincial governments that paid attention to the inequality issue are found to have higher urbanization levels than those that did not. Finally, we explore possible equity consideration-to-urbanization transmission channels, and empirically establish that equity consideration in PRC (e.g., government initiatives towards combating rural poverty or the urban-rural gap) is positively correlated with road density, which helps reduce migration costs, and with bank lending to the manufacturing sector, which helps enhance the pulling force of migration. Thus, policy makers in the developing world should reverse their prevailing anti-urbanization attitudes and practices that tend to slow down urbanization or restrict rural-to-urban migration.

Suggested Citation

  • Wan, Guanghua & Luo, Zhi & Zhang, Xun, 2017. "Urbanizing with Equity Consideration," ADBI Working Papers 642, Asian Development Bank Institute.
  • Handle: RePEc:ris:adbiwp:0642
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    urbanization; income inequality; Social welfare function; Optimization;

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure

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