contributing to the economic development of China’s interior, workers’ incentives to migrate to the coastal cities are expected to diminish as they can now find (well-paid) jobs in their own region.

In this paper, we quantify the effects of these two main spatial development policies on China’s economic geography. Building on earlier work by Roberts _et al._ (2012), Behrens _et al._ (2013), and Tabuchi and Thisse (2002), we incorporate labor mobility into a structural new economic geography (NEG) model that allows us to assess how the rapid construction of the intercity national expressway network (NEN) and the Hukou system have jointly shaped China’s spatial economy. First, we fit this model to the data using information on the rural and urban part of each of China’s 331 prefectures. Next, with our estimates of the important model parameters in hand, we simulate various counterfactual scenarios that allow us to pinpoint the impact of the NEN and the Hukou system on the distribution of both people and economic activity across China’s prefectural areas, as well as on rural-urban income inequality, and urbanization rates in different parts of the country.

We are not the first to look at the aggregate and/or spatial impacts of either the Hukou system or the NEN. However, earlier papers have looked at these issues separately. Banerjee et al. (2012), Roberts et al. (2012), and Faber (2014)<sup>2</sup> focus on the effect of the NEN. Roberts et al. (2012), using a similar combination of estimation and calibration as in this paper, find that the NEN did increase aggregate Chinese welfare. However, its construction did not decrease real income inequality between prefectures, nor reduce urban-rural wage inequality. Faber (2014) also finds that the NEN has reinforced the concentration of economic activity in the largest cities.<sup>3</sup> But the peripheral regions, while losing economic activity, have also gained better access to the products produced in the industrial centers thanks to the NEN. Taking both into account, he finds positive welfare impacts of the NEN in all Chinese regions.

Whalley and Zhang (2007) and Bosker _et al._ (2012) instead focus on the spatial economic consequences of the Hukou system. Given that a counterfactual China without Hukou restrictions is fundamentally unobserved, these papers establish the effect of the Hukou restrictions by comparing China’s regional economy today to various simulated “no Hukou-scenarios”.<sup>4</sup> Whalley and Zhang’s (2007) results

> 2 Baum-Snow, et al. (2012) is another prominent example. That paper focusses on the effect of the extent and configuration of intra-city infrastructure on urban form. The effect of intra-city infrastructure lies beyond the scope of our paper. Coşar and Fajgelbaum (2013) provide a model and some evidence that China’s internal economic geography is affected by the accessibility of the interior cities to the internationally well-connected coastal regions. An improvement in domestic infrastructure in their setup would result in a further migration to the coast. They do not, however, explicitly consider the effects of the NEN.

> 3 Faber (2014) combines reduced form estimates of the causal effect of the NEN on economic activity and population growth, with the calibration of a spatial economic model that allows him to generalize his reduced form estimates. Banerjee et al. (2012) use a very similar empirical strategy as employed by Faber (2014). Unlike Faber (2014), however, they do not calibrate the model they propose, only showing reduced form estimates.

> 4 Desmet and Rossi-Hansberg (2013) can also be considered to simulate spatial economic outcomes in China under a “no-Hukou” scenario. Their model assumes free labor mobility across prefecture cities throughout, but they argue that the migration restrictions can be captured by their city-specific estimates of amenities. Their “equal

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