Journal Article

Are Chinese Cities Too Small?

Chun-Chung Au and J. Vernon Henderson

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 73, issue 3, pages 549-576
Published in print July 2006 | ISSN: 0034-6527
Published online July 2006 | e-ISSN: 1467-937X | DOI:
Are Chinese Cities Too Small?

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  • Urban, Rural, and Regional Economics
  • Household Analysis
  • Economic Development


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This paper models and estimates net urban agglomeration economies for cities. Economic models of cities postulate an inverted U shape of real income per worker against city employment, where the inverted U shifts with industrial composition across the urban hierarchy of cities. This relationship has never been estimated, in part because of data requirements. China has the necessary data and context. We find that urban agglomeration benefits are high—real incomes per worker rise sharply with increases in city size from a low level. They level out nearer the peak and then decline very slowly past the peak. We find that a large fraction of cities in China are undersized due to nationally imposed, strong migration restrictions, resulting in large income losses.

Keywords: O18; P25; R11; R23

Journal Article.  15130 words.  Illustrated.

Subjects: Urban, Rural, and Regional Economics ; Household Analysis ; Economic Development

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