Urban bias, migration control and rural land' policy: the case of Hukou in China

Urban-biased politics often drives distortionary policies in many countries. We develop a political economy model in which the government faces a trade-off between retaining urban support and expanding its industrial rent base. The model shows that while an increase in urbanization strengthens the government's incentives to adopt rural land reform and to encourage rural-urban migration, an increase in urban productivity has the opposite effect. These effects are mediated by the income share of labor in the rural sector, the political power of urban residents and the labor elasticity of urban output. Using China's context, we illustrate that the model's predictions are consistent with the observed policies on land ownership and rural-urban migration.