The impact of city size on income inclusive growth: A human capital perspective and evidence from China

Abstract

This paper methodically investigates the influence of inclusive income growth on city size, examining it through the dual lenses of "income" and "distribution." The analysis leverages meticulously collected panel data encompassing 276 Chinese cities at the prefecture level and above, spanning the period from 2005 to 2019. Theoretical analysis indicates that the effect of city size expansion on per capita income adheres to a ’U’-shaped trajectory, while its influence on the urban-rural income gap manifests an ’inverted U’ pattern. Moreover, the inclusive income growth stemming from city size demonstrates notable heterogeneity across various geographic locations and city hierarchies. The findings reveal that human capital serves as the primary mechanism through which city size influences inclusive income growth. After decomposing the income inclusiveness index, it becomes evident that the expansion of city size exerts a more potent direct driving effect on the income of urban residents. On the one hand, city size expansion directly increases rural residents’ income levels by improving labor productivity. On the other hand, it facilitates leapfrog income development by inducing the rural labor force to move to cities.