Essays on Economic Growth and China's Urbanization

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Abstract

This thesis studies the impact of labor markets on economic growth in both developed and developing countries and China's urbanization, by formalizing dual labor market characteristics and China's Hukou system in two theoretical models. The first is a unified growth model in an open economy environment that captures dual labor market characteristics. The mechanism involves economic growth driven by capital accumulation in the country with Lewisian labor market leading to increasing labor participation at a near constant wage. The model shows that surplus labor plays a critical role in explaining different economic growth paths and structural changes in developing and developed countries, such as China and the US. The second is a dynamic general equilibrium model with endogenous rural-urban migration to analyze the provision of rural and urban government services in China, with special emphasis on the role of the household registration (Hukou) system in shaping its urbanization process. It argues that China’s urban bias policy, which is enabled by the Hukou system restricting rural-urban migration, did not necessarily reduce economic efficiency, rather it might have only raised urban welfare at the expense of rural residents. As the Hukou system also ties people to particular geographical locations, our model argues that China's continuous bias towards coastal and big cities has started to cause economic inefficiency as well as inequality. It suggests that progressive Hukou reform reducing barriers to cross-region migration would improve economic efficiency and welfare.

Keyword(s)

China; Dual Labor Market; Economic Growth; Efficiency; Structural Change; Urban Bias

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