The Welfare Implications of Internal Migration Restrictions: Evidence from China

70 Pages Posted: 21 Jul 2020 Last revised: 11 Aug 2020

See all articles by Wenbin Wu

Wenbin Wu

Fudan University

Wei You

Peking University

Date Written: February 1, 2020

Abstract

What are the welfare implications of placing restrictions on internal migration? Given externalities in location choices, the answer is ambiguous. This paper empirically examines what is presumably the largest government intervention in internal migration in human history--the Hukou system in China. Using a dynamic spatial equilibrium framework and restricted-use census data, we find that completely removing Hukou-related migration restrictions between 2000 and 2010 would have resulted in an approximate 8%-18% increase in GDP and welfare. The presence of externalities results in a conflict between national and local interests: while it would be beneficial to remove all Hukou restrictions from the national perspective, natives in the most desirable cities would suffer losses. This implies that optimal spatial policies need to incentivize the more desirable cities to accommodate an even larger population.

Keywords: Urbanization; Externalities; Optimal Spatial Policies; Hukou System; China

JEL Classification: R12; R13; R23; O15

Suggested Citation

Wu, Wenbin and You, Wei, The Welfare Implications of Internal Migration Restrictions: Evidence from China (February 1, 2020). Available at SSRN: https://ssrn.com/abstract=3637557 or http://dx.doi.org/10.2139/ssrn.3637557

Wenbin Wu

Fudan University

Beijing West District Baiyun Load 10th
Shanghai, 100045
China

Wei You (Contact Author)

Peking University ( email )

No. 38 Xueyuan Road
Haidian District
Beijing, Beijing 100871
China

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