Land transfer, reform of household registration system and urbanization in China: theoretical and simulation test

ZHOU Wen1 ZHAO Fang2 YANG Fei2 LI Lu3

(1.China Institute, Fudan University 200433)
(2.School of Economics, Shanghai University of Finance and Economics 200433)
(3.International Business School, Shanghai University of Finance and Economics)

【Abstract】The administrative restriction of land supply and circulation and the strict management of urban household registration have restricted the market allocation of population and land elements in China’s urbanization process. With the rapid growth of the urban economy and the large amount of labor migration, the land system and household registration system must be reformed to adapt to the accelerating urbanization process. Based on this background, this paper attempts to establish a theoretical model to study the mechanism and effect of land transfer and household registration system reform on China’s urbanization. In the literature, special land and household registration systems are considered to be the main causes of urbanization in China (Lu and Wan, 2014; Wen and Xiong, 2014). Research has examined the relationships between household registration systems, land systems, urban immigrant welfare, household registration, land and urbanization. In general, this research has been limited to comparisons of international experience, case analysis, typical fact summaries and general logical reasoning. There remains no unified theoretical framework based on microcosmic individuals analyzing the linkage between land systems, household registration systems and urbanization. This paper attempts to make up for the lack of research in the urban economic literature, and to construct a theoretical model of endogenous urbanization including two types of heterogeneous individuals in rural and urban areas. This model is based on the Lewis dualistic economic model, based on which we relax our hypotheses about the infinite supply of rural surplus labor and labor homogeneity, taking into account the mutual game mechanism of the political economy interest groups and Lucas’ s human capital externality following immigration human capital accumulation in the city. The model introduces the restriction of land transfer and population migration, and describes the impact of the land and household registration systems on urbanization and resident welfare. Theoretical equilibrium results show the following. First, under strict land control and household registration restrictions, only rural individuals with higher human capital move to cities. Second, allowing for land transfer displacement or relaxing urban household registration has two effects. On the one hand, it moves more labor from rural to urban areas due to increasing land revenue and reduced mobility costs, thereby speeding up the urbanization. On the other hand, it increases individual (both in urban and rural areas) output and significantly improves individual welfare in rural areas, resulting in a slight decline in urban individual welfare. Furthermore, calibration parameters and simulation tests support theoretical conclusions, and counter factual experiments using related urbanization and land data from 2000 to 2012 reveal that allowing a unit “homestead” to replace 0.5 units of city construction land increased urbanization by 1 percentage point over the actual value in 2000 and 2.5 percentage points over the value in 2011. If the overall degree of labor friction had fallen by 0.3 units, the urbanization rate would have increased by 2 percentage points in 2000 and 3 percentage points in 2011. This paper has the following main policy implications. It suggests breaking the dual labor market in China, integrating the labor market, further deepening the Chongqing “land” system and building a unified national indicator market to achieve the land use rights associated with trans-regional allocation.

【Keywords】 land transfer; relaxation of household registration system; labor heterogeneity; urbanization; regional equilibrium;

【Funds】 Scientific and Research Innovation Project of Shanghai University of Finance and Economics (CXJJ-2014-374).

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    [1]. ① In accordance with China’s land use control system and the increase and decrease of urban and rural construction land, the balance of arable land, if the increase in the amount of cultivated land can be used as an indicator of new construction land, the new indicator will be formed in addition to giving priority to rural construction development as the so-called “securitized land”" (Huang, 2015).

    [2]. ①, December 7, 2016,

    [3]. ①

    [4]. ② This paper introduces the assumption that individual human capital obeys the Pareto distribution. In fact, this assumption can also be understood as the fact that each individual has the same unit of human capital, and the degree of willingness to move to the city or live in the city obeys, which is similar for model solutions.

    [5]. ① Compared with the “iceberg cost” in the international trade and economic geography literature, the iceberg cost in this paper is a fixed quantity. It has two advantages. First, it can consider the continuous distribution of human capital, and does not change the density function shape of human capital distribution, simplifying model derivation, but when using a proportional “iceberg cost,” the conclusion remains the same.

    [6]. ① It is assumed that the choice of rural individuals to enter the city is determined only by the size of the urban and rural utility in the current period. Because the characteristics of urban externalities, clustering and scale ensure that the utility level of the city rises faster than that of the rural areas, urbanization is generally an irreversible process. At the same time, there is a certain cost flowing from urban to rural areas, such as rural homesteads and cultivated land resources are difficult to be obtained by urban individuals.

    [7]. ② Due to space limitations, only the intuitive meaning and simple explanation of the proposition are given. Detailed proof can be obtained from the author.

    [8]. ① The simulation of urbanization rate draws on the estimation of urban size distribution in Figure 2-A of Desmet and Rossi-Hansberg (2013).

    [9]. ① Results in other years are similar. Due to space limitations, we will not repeat them. If you need them, you can ask for the authors.

    [10]. ② According to China Statistical Yearbook (2001), the per capita net income of rural households in 2000 was CNY 2253, the per capita disposable income of urban households was CNY 6280, and the income ratio of urban and rural residents was 2.79.

    [11]. ③ Land transfer caused the increase of rural individuals to move to cities. First, because of the existence of urban economies of scale, the increase of Ana leads to an increase of the number of non-agricultural products in urban areas, which has a positive effect on urban individual welfare. Second, the reduction of rural individuals causes the rise in the prices of agricultural products, which has a negative effect on urban individual welfare. Third is land transfer, urban land supply increases, urban land rent price declines, but at the same time the inflow of urban individuals increases, urban land rent prices rise, and the three effects work together on the change of urban individual utility.


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This Article


CN: 11-1081/F

Vol 52, No. 06, Pages 183-197

June 2017


Article Outline


  • 1 Introduction
  • 2 Endogenous urbanization model
  • 3 Equilibrium solution of the model
  • 4 Numerical simulation and inspection
  • 5 Conclusion
  • Footnote