Moreover, we explicitly allow for migration both within (from rural to urban areas) and between prefectures. Here we follow Behrens _et al._ (2013) and Tabuchi and Thisse (2002), and model people’s migration decisions as depending on real wage- and amenity-differences between locations, as well as on individual-specific idiosyncratic preferences for living in a particular location.<sup>8</sup> Only relatively few studies estimate the relative importance of these different factors for people’s migration decisions in the Chinese context. One important reason for this is the absence of comprehensive data on bilateral migration flows (either urban-rural migration flows or inter-prefectural migration flows).<sup>9</sup> Relying on the equilibrium conditions of our model, shows that we can estimate their importance using readily available data on the stock of migrants in the rural and urban part of each prefecture only. Our results confirm the notion that migration in China is predominantly driven by people in search of higher real wages, and better provision of public amenities. Migration within the same province responds more strongly to these factors than migration to prefectures in other provinces (consistent with findings in Zhang and Zhao, 2013).

The second contribution of our paper is that our model and accompanying data set allow us to provide a much more complete picture of the impact of the NEN and/or Hukou system on China’s spatial development. Given that earlier papers considering the impact of the NEN all assume regional labor immobility, they only focus on the NEN’s effect on the spatial distribution of real income - either between prefectures in Roberts _et al_ ., (2012) and Faber (2014), or between the urban and rural areas within prefectures (Roberts _et al._ , 2012). Bosker _et al._ , (2012), instead focuses exclusively on the effect of the Hukou on the spatial distribution of people and firms across China’s prefectural cities. They do not detail the effects on real income inequality or urbanization rates.<sup>10</sup> In this paper we consider the effect of the NEN and the Hukou system on _i)_ real income inequality between and within (urban vs. rural areas) prefectures, _ii)_ evaluate how they affect the spatial distribution of people across China’s prefectures, and _iii)_ assess their impact on the urbanization rates in different parts of China.<sup>11</sup>

> 8 Modelling and estimating people’s migration dynamics in this way improves upon Whalley and Zhang (2007) and Bosker _et al._ (2012). Whalley and Zhang model people as moving in response to regional (provincial) wage differences only, whilst Bosker et al. incorporate migration dynamics based on evidence relating to interprovincial migration flows and ad hoc assumptions on migration costs.

> 9 Poncet (2006) also relies on migrant flows at the provincial level, focusing on rural to urban migration only. This hides a lot of variation at the inter-prefectural and intra-prefectural level. The bulk of migration in China is within provinces. Other studies (notably Rozelle _et al._ , 1999; Zhao, 1999a,b and more recently Zhang and Zhao, 2013 or Giuletti _et al_ ., 2014) provide evidence on the determinants of people’s migration by relying on surveys in particular areas of China. Although very interesting, and despite the fact that these latter two studies use surveys covering the 15 cities that are the largest migration destinations, it is not obvious that their results generalize to other parts of China.

> 10 An exception is Whalley and Zhang (2007). They do consider the effect of the Hukou restrictions on income inequality, as well as on the spatial distribution of people across China. However the most detailed spatial level at which they conduct their analysis is that of China’s 31 provinces. These provinces are still very large.  As a consequence, their analysis hides a lot of variation at a more detailed geographical level.

> 11 In both Faber (2014) and Roberts _et al_ . (2012), the NEN implicitly has no impact on the rate of urbanization because of the assumed absence of migration.

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