Migration and resource misallocation in China

• Main Authors: LI, Xiaolu, MA, Lin, TANG, Yang
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2024
• Subjects: Economic geography; Misallocation; Regional trade; Welfare gain; Asian Studies; International Economics; Regional Economics
• Online Access: https://ink.library.smu.edu.sg/soe_research/2719; https://ink.library.smu.edu.sg/context/soe_research/article/3718/viewcontent/lmt_China_sv.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 equilibrium model with input and output distortions and migration, we show that the firm-level frictions are less dispersed and less correlated with firm productivity in richer prefectures. Counterfactual exercises show that reducing the within-prefecture misallocation increases aggregate welfare, discourages migration toward large prefectures, and reduces spatial inequality. Moreover, internal migration alleviates micro-frictions’ impacts on aggregate welfare and worsens their effects on spatial inequality.