Econometric Analysis of Economic Growth and Internal Migration Based on Three Regions of China

Abstract

This paper aims to clarify the mechanism of enlarging interregional disparity, and its relationship with internal migration from retarded to advanced regions. For this purpose, China was divided into three regions: advanced coastal region, retarded inland region and middle region. These regions were further divided into two areas (urban, rural) and two sectors (formal, informal), and a time-series data set (1978-2001) was constructed. Based on this data set, a three region-two area-two sector econometric model was developed and various simulations implemented. Inter-provincial migration and urbanization trends are important factors when discussing the development of the Chinese economy, trends in interregional disparity and perspectives of inland region development. However, statistical information, empirical surveys and econometric studies on the magnitude and patterns of internal migration, the extent of remittance by workers to their homeland, and the possible effects on migration are scarce. This paper aims to fill this gap. I first estimated the time trends of labor productivities in formal and informal sectors in urban and rural areas, and 30 interregional migration flows and 6 intraregional migration flows between various areas. I estimated the distribution of educational careers (semi-illiterate, elementary school, middle-school, senior-high-school and university graduates) in urban and rural areas, and introduced as an important explaining variable to affect the labor productivities and internal migration. According to the Harris-Todaro formula, the formal employment and unemployment exist in urban area, and the migration from rural to urban area is induced based on the comparison between the urban formal sector wage discounted by unemployment rate and the rural wage. In reality most of the unutilized labor in urban area are not completely unemployed, but are pooled as the employment in informal sector with low labor productivities. I intend to describe this tendency, and to present an internal migration model with most precise subdivision in developing economies. I constructed an econometric model based on the time-series data (1978-2004) of three regions, and implemented various simulations to clarify the effects of deregulation of internal migration, changes of educational career distribution, increase of foreign direct investment, and Western region development plan upon the economic growth and internal migration.JEL Classification: C01, C22, C51, J24