Urbanization, Structural Transformation and Rural-Urban Disparities in China and India

Chenyu Hou ()
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Chenyu Hou: Simon Fraser University, https://www.sfu.ca/economics/about/faculty/current/sev--chenyu--hou/

Discussion Papers from Department of Economics, Simon Fraser University

Abstract: Over the past three decades India and China have experienced rapid growth and structural transformation. Underneath this similarity however was one significant difference: rural-urban wage gaps declined in India, but widened in China. In both countries, the majority of these wage dynamics are unexplained by worker attributes. We formalize a two-sector-two-location model in which structural transformation and urbanization respond endogenously to productivity shocks. While the structural transformation effect widens the urban-rural wage gap, the urbanization effect reduces it. We attribute the contrasting wage gap dynamics in the two countries to the higher costs of urban relocation for workers in China.

Date: 2023-05
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