The Welfare (Inequality and Growth) Effects of Urbanization: Empirical Evidence from China

Combining household survey and aggregate provincial data, this paper explores the overall social welfare (growth plus inequality) effect of unprecedented urbanization in China. It is found that (1) urbanization does help raise income, particularly for rural residents and the relatively poor; (2) urbanization is one of the most important contributors to rising inequality in China. However, such adverse influence has been declining over time; and (3) the overall welfare (inequality plus growth) impact of urbanization is positive and rising. It can thus be concluded that public policy makers in China shall devote efforts to promote rather than slow down urbanization in China despite its short-run adverse distributional effect.