The Aggregate and Distributional Effects of Urbanization and Migration in China

This paper investigates the aggregate and distributional effects of urbanization and migration in China using a spatial equilibrium model and population sample survey data from 2005 and 2015. Our quantitative results show a high (low) elasticity of substitution between rural migrants and low-skill (high-skill) urban natives. Rural-urban migration generates substitution effects and agglomeration externalities in the urban labor market, leading to an increase in high-skill native wage, and a slight decrease in low-skill native wage. Migrant inflow also drives up urban housing costs and the rental income of homeowners, which results in overall welfare gains for urban population, but welfare losses for urban low-skill renters. In addition, rural population benefits greatly from access to higher wages and better amenities in cities. Overall, our findings suggest that rural-urban migration leads to a net welfare gain at the national level. To reduce the welfare losses for urban low-skill renters, future policy should allocate land development quotas based on the direction of population flow