Hukou and Highways

China has used two main spatial policies
to shape its geographic patterns of development: restricted
labor mobility through the Hukou residential registration
system and massive infrastructure investment, notably a
96,000 kilometer national expressway network. This paper
develops a structural new economic geography model to
examine the impacts of these policies. Fitting the model to
available data allows simulating counterfactual scenarios
comparing each policy’s respective impact on regional
economic development and urbanization patterns across China.
The results suggest large overall economic benefits from
constructing the national expressway network and abolishing
the Hukou system. Yet, the spatial impacts of the two
policies are very different. The construction of the
national expressway network reinforced existing urbanization
patterns. The initially lagging regions not connected to the
network have not benefitted much from its construction. By
contrast, removal of the Hukou restrictions, which Chinese
policy makers are considering, would result in much more
widespread welfare gains, allowing everyone to gain by
moving to where he or she is most productive. Removal of the
Hukou restrictions would also promote urbanization in
currently lagging (inland) regions, mostly by stimulating
rural to urban migration.