Migrants and Firms: Evidence from China

Abstract

This paper provides causal empirical evidence that rural-urban migration lowers urban rm productivity in developing countries. We use longitudinal data on Chinese manufacturing firms between 2001 and 2006, and exploit exogenous variation in rural-urban migration due to agricultural price shocks for identification. We nd that following a migrant infl ow, labor costs decline and employment grows. Within firm, labor productivity decreases sharply and remains low in the longer run. Within industry and location, it is low productivity rms that grow the most, so that aggregate labor productivity falls even faster. Since migrants favor high-productivity destinations, migration strongly equalizes factor productivity across locations.