A Simple Model of the Chinese Hukou System and Some Ongoing Reforms

Laixun Zhao

No DP2016-03, Discussion Paper Series from Research Institute for Economics & Business Administration, Kobe University

Abstract: We model the Chinese Hukou (household registration) system, from the Mao era when it was strictly enforced to the early reform era (Deng Xiaoping era) when peasants were allowed to migrate to cities for work only. We document some stylized characteristics of Hukou control, and based on which build a rigorous model of the dual labor market generated by it. The model can explain the urban-rural divide, especially in the early transition period, and the fact that rural migrant workers not only made important contributions to China's export boom, but also reversed the Chinese trade pattern—from exporting primary products to manufactured goods, because they are the labor force in "the manufacturing hub of the world". Reform recovers some of the deadweight losses from Mao's strict Hukou control, but the gains from reform are unevenly distributed. We also apply the model to examine the impacts of various policies and some ongoing reforms such as special economic zones, export-tax refund, urbanization, privatization, one-child policy, etc.

Keywords: Chinese institutions; Discrimination; Hukou; Rural-Urban migration; Earnings inequality; Trade policy; Special economic zones; Urbanization (search for similar items in EconPapers)
JEL-codes: F1 J4 P2 P3 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2016-02, Revised 2017-01
New Economics Papers: this item is included in nep-cna and nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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