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

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

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

Eric Wirths Bond

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

Box 1819 Station B
Nashville, TN 37235
United States
615-322-3237 (Phone)
615-343-8495 (Fax)

Raymond G. Riezman (Contact Author)

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

316 PBB
Iowa City, IA 52242
United States

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

Aarhus University - Department of Economics and Business ( email )

Fuglesangs Alle 4
Aarus, 8210
Denmark

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

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

2127 North Hall
Santa Barbara, CA 93106
United States

GEP ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.cesifo.de

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 )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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