Migration and spatial misallocation in China

• Main Authors: LI, Xiaolu, MA, Lin, TANG, Yang
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2023
• Subjects: misallocation; regional trade; economic geography; welfare gai; Asian Studies; International Economics; Regional Economics
• Online Access: https://ink.library.smu.edu.sg/soe_research/2498; https://ink.library.smu.edu.sg/context/soe_research/article/3497/viewcontent/lmt_2023_flat.pdf
• Institution: Singapore Management University

We structurally estimate the firm-level frictions across prefectures in China and quantify their aggregate and distributional implications. Based on a general equi-librium model with input and output distortions and migration, we show that the firm-level frictions are less dispersed and less correlated with productivity in richer prefectures. Counterfactual exercises show that reducing the within-prefecture mis-allocation increases the aggregate welfare, discourages migration towards large cities, and narrows the spatial inequality. Moreover, internal migration alleviates the impacts of micro-frictions on aggregate welfare and worsens their impacts on spatial inequality.