Openness and Urbanization: The Case of the People’s Republic of China

Abstract

Urbanization usually occurs with structural transformation driven by a “push” from agricultural productivity growth and a “pull” from industrial productivity growth, and usually the former exceeds the latter. This paper presents a simple model to illustrate how the open policy in the People’s Republic of China (PRC) since 1979 reversed the pattern such that the “pull” effect dominated the “push” effect during the PRC’s structural transformation and urbanization. This model helps explain why the PRC, whose industrial productivity growth exceeds its agricultural productivity growth, has experienced a standard pattern of structural transformation. The paper also demonstrates how a developing country’s business services intensity increases with its urbanization.