Urbanization, Structural Transformation And Rural-Urban Disparities In China And India
Author(s) Viktoria Hnatkovska and Amartya Lahiri


Over the past three decades India and China have experienced rapid economic growth along with structural transformation. Underneath the overall similarity however was one significant difference: rural-urban wage gaps declined in India, but widened in China. In both countries, the majority of these wage dynamics are left unexplained by worker attributes. We formalize a two- sector-two-location model in which structural transformation and urbanization respond endoge- nously to productivity shocks. While the structural transformation effect widens the urban-rural wage gap, the urbanization e¤ect reduces it, allowing the model to account for wage convergence in India and wage divergence in China.

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