Filling a gap left by previous literature, this paper finds that many macroeconomic “puzzles” exhibited by the Chinese economy can be explained (at least partially) by the evolution of China’s internal-migration policies. Such policies not only have a profound impact on China’s labor market conditions, but also explain many China specific phenomena such as its rising saving rate, persistent and increasing wage gap, and seemingly constant rate of urbanization that are contrary to the implications of traditional macroeconomic models. In this paper, we introduce a theoretical framework capturing how human-migration policies are formed by the authorities while retaining the main features and assumptions of traditional models. We show that by incorporating the government’s decision in the theoretical framework, the model generates sensible implications consistent with Chinese data, hence adds to our understanding of the existing ”puzzles.”
URL : http://scid.stanford.edu/sites/default/files/publications/542wp.pdf