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Urbanization, Structural Transformation and Rural-Urban Disparities in China and India

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Abstract

Over the past three decades India and China have experienced rapid growth and structural transformation. Underneath this similarity however was one significant difference: rural-urban wage gaps declined in India, but widened in China. In both countries, the majority of these wage dynamics are unexplained by worker attributes. We formalize a two-sector-two-location model in which structural transformation and urbanization respond endogenously to productivity shocks. While the structural transformation effect widens the urban-rural wage gap, the urbanization effect reduces it. We attribute the contrasting wage gap dynamics in the two countries to the higher costs of urban relocation for workers in China.

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  • Viktoria Hnatkovska, Chenyu (Sev) Hou and Amartya Lahiri, 2023. "Urbanization, Structural Transformation and Rural-Urban Disparities in China and India," Discussion Papers dp23-14, Department of Economics, Simon Fraser University.
    • Handle: RePEc:sfu:sfudps:dp23-14
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