Quantifying the distributional effects of urbanization and migration in China

Abstract

This paper investigates the distributional effects of urbanization and migration in China by employing a two-sector spatial equilibrium model and population censuses in 2005 and 2015. Our analysis reveals that rural migrants who are predominantly low-skill exhibit higher substitutability with urban low-skill natives than with urban high-skill natives. Taking into account changes in nominal wages, housing prices, and local amenities, our quantitative results suggest that the reduction in rural-urban migration costs over the period contributed to an overall increase in national welfare of approximately 4 % to 5 %. Rural population experiences the largest welfare improvements, with gains ranging from 5.84 % to 7.74 %. Assuming an equal distribution of rental income among native residents, high-skill urban population experiences welfare increases between 0.96 % and 1.37 %, whereas low-skill urban population receives comparatively smaller gains, ranging from 0.25 % to 0.55 %. By contrast, urban population without housing ownership incurs welfare losses of 0.39 % to 1.89 %.