Urbanization and Economic Development: A Tale of Two Barriers

31 Pages Posted: 10 Mar 2016

See all articles by Eric W. Bond

Eric W. Bond

Vanderbilt University - College of Arts and Science - Department of Economics

Raymond G. Riezman

Aarhus University - Department of Economics and Business Economics; University of California, Santa Barbara (UCSB) - Department of Economics; University of Iowa - Henry B. Tippie College of Business - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); GEP; Aarhus University - School of Business and Social Sciences

Ping Wang

Washington University in St. Louis - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: February 8, 2016

Abstract

In this paper we determine the main driving forces underlying the structural transformation and urbanization process in rapidly industrializing countries. We use a dynamic, small open economy model with an abundant supply of surplus labor in rural areas, two types of traded goods manufactured in urban areas, and barriers to both trade and migration. The model is supplemented with quantitative analysis fitting the data from China, to explore the role that reductions in trade and migration barriers played in China’s growth and urbanization. We find that the primary drivers for real per capita GDP growth are migration cost reduction and skill accumulation. While trade liberalization is important for urbanization during the transition toward China’s admission to the WTO it does not contribute much to real per capita GDP growth. During this transition process, migration cost reduction and TFP changes are also important, accounting for a significant proportion of increased urbanization.

Keywords: barriers to migration and trade, urbanization, economic development, surplus labor

JEL Classification: O410, O110, F160, R230

Suggested Citation

Bond, Eric Wirths and Riezman, Raymond G. and Wang, Ping, Urbanization and Economic Development: A Tale of Two Barriers (February 8, 2016). CESifo Working Paper Series No. 5742, Available at SSRN: https://ssrn.com/abstract=2745169 or http://dx.doi.org/10.2139/ssrn.2745169

Eric Wirths Bond

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

Box 1819 Station B
Nashville, TN 37235
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Raymond G. Riezman (Contact Author)

Aarhus University - Department of Economics and Business Economics ( email )

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Denmark

HOME PAGE: http://www.biz.uiowa.edu/faculty/rriezman/

University of California, Santa Barbara (UCSB) - Department of Economics ( email )

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University of Iowa - Henry B. Tippie College of Business - Department of Economics ( email )

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United States

HOME PAGE: http://www.biz.uiowa.edu/faculty/rriezman/

CESifo (Center for Economic Studies and Ifo Institute)

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GEP ( email )

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Aarhus University - School of Business and Social Sciences ( email )

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Ping Wang

Washington University in St. Louis - Department of Economics ( email )

One Brookings Drive
St. Louis, MO 63130
United States

National Bureau of Economic Research (NBER) ( email )

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