The relationship between population growth and capital allocation in urbanization

Over the past three decades, China is experiencing a massive rural-urban migration. Research have identified issues in the rapid urbanization in China and explored the solutions. But the roles that population growth and capital allocation play in urbanization were disconnected in previous studies. As such, this study explores the interaction between urban-rural population distribution and capital allocation in the process of urbanization. In specific, this paper performs an empirical test to examine the population changes and the efficiency of capital allocation based on the data of urbanization in China from 1985 to 2014. The results show that a long-term equilibrium exists between the proportion of urban-rural population and the difference of marginal productivity between urban areas and rural areas. The course of the deterioration of the efficiency of the urban-rural capital distribution is found as well.