A simple model of the Hukou system and Chinese exports

We construct a simple model of hukou reform for the transition period (specifically, 1984–2010) when peasants were allowed to migrate to cities for work only. We show that reform recovers some of the deadweight losses from Mao's strict hukou control, but the gains from reform are unevenly distributed. Using the basic model, we illustrate two factors that contribute to China's trade boom and export pattern reversal, namely, the rural–urban migration caused by the institutional reform in the labor market and the demographic dividend China has enjoyed for the past 40 years. We apply the model to examine the impacts of various policies such as special economic zones, export‐tax refund, urbanization, etc., which should provide directions for empirical and quantitative research.