The Effects of Rural-Urban Migration on Corporate Innovation: Evidence from a Natural Experiment in China

Abstract

We show that the migration of low-skilled, rural workers to urban centers has a negative causal effect on innovation of firms in such urban centers. Our tests exploit the staggered relaxation of city-level household registration system in China, which facilitates rural residents to migrate to cities. We find a significant decrease in innovation for firms headquartered in cities that have adopted such policies relative to firms headquartered in cities that have not. Overall, our results support the view that an abundant supply of low-skilled workers increases the benefit of using existing low-skilled technology and thus reduces firms’ incentive to innovate.

Keywords: Innovation, Patents; Migration, Low-Skilled Worker, Household Registration, Hukou

JEL Classification: G38, J24, O31