Trade, Migration, and Productivity: A Quantitative Analysis of China†
By Trevor Tombe and Xiaodong Zhu*
We study how goods- and labor-market frictions affect aggregate
labor productivity in China. Combining unique data with a general
equilibrium model of internal and international trade, and migration
across regions and sectors, we quantify the magnitude and
consequences of trade and migration costs. The costs were high in
2000, but declined afterward. The decline accounts for 36 percent
of the aggregate labor productivity growth between 2000 and 2005.
Reductions in internal trade and migration costs are more important
than reductions in external trade costs. Despite the decline,
migration costs are still high and potential gains from further
reform are large. (JEL E24, F16, J24, P23, P25, R12, R23)