Migration and resource misallocation in China

Xiaolu Li, Lin Ma and Yang Tang

Journal of Development Economics, 2024, vol. 167, issue C

Abstract: 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.

Keywords: Misallocation; Regional trade; Economic geography; Welfare gain (search for similar items in EconPapers)
JEL-codes: F12 O11 R12 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:deveco:v:167:y:2024:i:c:s0304387823001748

DOI: 10.1016/j.jdeveco.2023.103218

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