Internal Migration and Structural Change in China

ABSTRACT This study empirically examines how internal migration in China has affected the shift in employment from agriculture to non‐agricultural sectors using spatially granular destination areas (prefecture‐level cities). The methodology quantifies both direct and indirect effects of internal migration: the direct effects reflect migration shocks on factor and product markets, while the indirect effects capture migration's influence on income per capita and sectoral productivity. Instrumental‐variable estimates in 2SLS and 3SLS regressions indicate that migration substantially contributed to structural change. We find that both a direct effect and an indirect effect operating through increases in relative agricultural productivity contribute to the rise in the employment share of non‐agricultural sectors. This article discusses the broader implications of these effects for China's economic growth.