Title: Do Internal Migration Restrictions Cause Cities to be too Small? A Quantitative Analysis of the Hukou System in China

Speaker: Wei You, Peking University

Time: 13:30 – 15:00, 27 September, 2021

Venue: Room 106, Zhonghui Building, Shipai Campus, Jinan University

About the Speaker:

Wei You is an Assistant Professor at the Institute of New Structural Economics, Peking University. He obtained his Ph.D. in Economics from the University of California, San Diego in 2017 and was a Research Fellow at Furman Center for Real Estate and Urban Policy at New York University in 2017 – 2020. His research interests include urban economics, development economics, international trade and economic history.

Abstract:

In a system of cities model that incorporates urban externalities, a classical prediction is that in the free-migration equilibrium, the largest cities are oversized. Therefore, internal migration restrictions imposed by the largest cities could either improve or worsen the social welfare. Using a dynamic spatial equilibrium framework and a rich data set of Chinese cities, this paper empirically estimates: (1) whether Chinese cities were too large or too small, both from the local and national perspectives; (2) how the Hukou system impacted the local and national welfare. We find that the largest Chinese cities were too small from the national perspective. The Hukou restrictions caused a welfare loss of about 7.3% over the period of 2000-2020. While the Hukou restrictions enabled the largest cities to control population in their local interests, the observed city sizes were still greater than their locally optimal levels. Therefore, our results imply a fundamental conflict of local and national interests. We discuss several policies which could partially resolve this conflict of interests.