Abstract
This paper examines the spatial economic impact of China's two main spatial development policies: restricted labor mobility through the Hukou residential registration system, and the construction of a 96,000 km national expressway network (NEN). Using a structural new economic geography approach, we find that these policies have shaped regional economic development and urbanization patterns across China in very different ways. The construction of the NEN has reinforced China's existing core-periphery patterns: initially lagging regions not connected to the NEN have not benefitted much from its construction. By contrast, a removal of the Hukou restrictions is predicted to result in much more widespread welfare gains, allowing all people to benefit by moving to where they are most productive. Interestingly, it would even promote urbanization in currently lagging (inland) regions, mostly by stimulating rural outmigration.
Highlights
In recent decades, China’s economy has been characterized by rapid economic development accompanied by rapid urbanization
We find that the construction of the national expressway network (NEN) has only reinforced existing urbanization patterns
Our model introduces labor mobility into the new economic geography (NEG) model developed in Roberts et al (2012)
Summary
China’s economy has been characterized by rapid economic development accompanied by rapid urbanization. With our estimates of the important model parameters in hand, we simulate various counterfactual scenarios that allow us to pinpoint the impact of the NEN and the Hukou system on the distribution of both people and economic activity across China’s prefectural areas, as well as on rural-urban income inequality, and urbanization rates in different parts of the country. Given that earlier papers considering the impact of the NEN all assume regional labor immobility, they only focus on the NEN’s effect on the spatial distribution of real income - either between prefectures in Roberts et al, (2012) and Faber (2014), or between the urban and rural areas within prefectures (Roberts et al, 2012).
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