Trade, strongruralstrong–urban migration, and regional income disparity in.pdfVIP

Regional Science and Urban Economics 32 (2002) 311–338 /locate/econbase Trade, rural–urban migration, and regional income disparity in developing countries: a spatial general equilibrium model inspired by the case of China * Dapeng Hu Zell /Lurie Real Estate Center, The Wharton School, University of Pennsylvania, PA, USA Received 15 June 1999; received in revised form 28 November 2000; accepted 6 December 2000 Abstract Inspired by the case of China, this paper develops a spatial agglomeration model to explain the increasing regional disparity in China and explore several policy implications. The model shows that the improving trade condition and the increasing rural-to-urban labor mobility in China may be the reasons for the enlarging income gap between the coastal area and the hinterland. With a geographical advantage in international trade, the coast becomes the initial location for industrial agglomeration and its leadership becomes strengthened by the positive feedback mechanism from increasing returns to scale. The necessary labor supply for industrial agglomeration in the coast comes from intraregional rural-to-urban migration instead of interregional migration. As a consequence of the industrial agglomera- tion, the income disparity between the coast and the hinterland increases. The location disadvantage of the interior comes from higher transportation cost in international trade. However, the model suggests that increasing domestic accessibility can actually make the interior worse off.  2002 Elsevier Science B.V. All rights reserved. Keywords : Agglomeration; Regional