Hitting the Great Wall: Structural change and China's growth slowdown

China is facing slowing growth rates, slowing rates of rural to urban migration and resistance to reforms that would liberalize internal migration restrictions (Hukou). We use a two sector Ramsey growth model and show that, allowing for endogenous capital accumulation, labour reallocation has accounted for approximately one fifth of China's per capita GDP growth over the last 30 years, and that Hukou reform could generate a significant boost to China's per capita GDP growth over the next decade. Our results contrast with conclusions drawn from the traditional growth accounting literature on labour reallocation effects in China because our simulation method allows for endogenous capital accumulation dynamics. •We quantify the impact of internal migration and labour market reform in China.•Labour migration accounts for 1/5 of China's historical per capita GDP growth.•Our estimate is twice as large as is suggested by traditional growth accounting.•Hukou reform can generate a strong boost to China's growth over the next decade.