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| Impacts of In situ Urbanization on Household Disposable Income: Evidence from CHFS |
| XIAO Wei, LIU Wenhua, XIE Ting
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Research Institute of Economics and Management, Southwestern University of Finance and Economics;
Institute of Western China Economic Research, Southwestern University of Finance and Economics |
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Abstract In recent decades, China has experienced rapid urbanization, during which the spatial size of its cities has expanded substantially. To accelerate its urbanization, for example, China launched a nationwide jurisdiction-adjustment policy in the past decade that incorporated one or several peripheral counties into the central city and expanded the spatial scale of cities. However, the impacts of this government-directed city growth on households are not well investigated in the literature. We fill this gap by examining the causal effects of government-directed city growth on households' disposable income.
Since 2010, China has been using city annexation in many prefecture-level regions to promote the New Urbanization strategy. By redefining the counties adjacent to prefectures' central cities as municipal districts, city annexation expands the spatial scale of central cities. Unlike rural counties, where agriculture accounts for a significant share of the local economy, municipal districts focus on industrial and commercial development. Therefore, incorporating a county into the central city promotes the development of non-agricultural sectors and urbanization in the treated counties. Using data from the China Household Finance Survey (CHFS), we investigate the effects of incorporating counties into central cities on individual households, focusing on household disposable income.
We utilize data from the CHFS of 2013, 2015, and 2017, along with the difference-in-differences method, to examine the effects of county-city mergers on household disposable income in China, reveal the mechanism underlying these effects, and further explore their role in narrowing income disparity. We report four main findings. First, city annexation significantly improves the disposable income of households in the treated counties by an average of 9.35%. A flexible estimation shows that the disposable income of households in the treatment groups is not different from that of households in the control group before the county-to-district conversion, but it is significantly higher after the conversion. Second, the county-to-district conversion increases household disposable income by increasing wages and industrial/commercial income. Our channel analysis shows that incorporating a county into the central city improves labor market conditions, increases the number of jobs, and stimulates entrepreneurship in the treated counties. Third, the revealed income effects exhibit heterogeneity between counties and households. Entrepreneurship's effects on income exist only in counties that belong to prefectures with developed central cities. In contrast, the conversion's effects on wages are significant only if the central cities are relatively undeveloped. Rural areas with a low level of economic development are more likely to be affected than urban areas. Educated people in the treated counties are more likely to obtain higher wages and industrial/commercial income after the reform than are uneducated people. Finally, incorporating counties into central cities has different income-enhancing effects in households with different income levels. Incorporation has a strong impact on middle-and low-income households but has no significant impact on wealthy households, suggesting that incorporating counties into central cities decreases income disparity within households in the treated counties.
We make two contributions to the literature. First, using data from a household survey, we contribute to the literature by examining the effects of the government-directed and planned urbanization policy on the level and structure of household income. This is our main contribution. Previous studies on jurisdiction adjustment focus on its impacts on macro indicators such as urbanization, public goods provision, and economic development. However, the impacts of jurisdiction adjustment on households are not well investigated. Second, our finding that incorporating counties into central cities affects household disposable income through its effects on labor markets and entrepreneurship reveals the mechanisms of jurisdiction adjustment.
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Received: 10 January 2022
Published: 07 April 2023
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