The Welfare Distribution Effects of Developing a Unified National Market

【Authors】

MAO Haitao, NIE Yuqian, QIAN Xuefeng & ZHANG Jie

【WorkUnit】

MAO Haitao, NIE Yuqian, QIAN Xuefeng (Zhongnan University of Economics and Law, 430073)；ZHANG Jie (Nankai University, 300071)

【Abstract】

Against the backdrop of weakening external demand, accelerated restructuring of global value chains, and China’s shift toward a development pattern featuring unimpeded domestic and international economic flows, building a national unified market is crucial for unlocking the potential of China’s enormous domestic market and for ensuring that the gains from market integration are distributed more equitably across different groups. From the perspectives of “enlarging the pie” and “distributing the pie well”, this paper examines how reducing institutional barriers in domestic commodity and factor markets affects the welfare of workers with different skill levels, and explores the underlying mechanisms.
To characterize the heterogeneous welfare effects of market integration, we construct a spatial general equilibrium model that incorporates consumer skill and preference heterogeneity, domestic and international trade networks, inter-sectoral input-output linkages, and interregional labor mobility. We integrate China’s interprovincial upstream and downstream industrial linkages into a unified analytical framework, thereby identifying the combined effects of trade costs, migration costs, industrial linkages, and regional specialization on residents’ welfare. Changes in consumer welfare are further decomposed into income, price, and migration effects.
Using China’s multi-regional input-output tables, OECD inter-country input-output tables, population census data, customs data, and statistical yearbooks, we calibrate a benchmark equilibrium covering China’s 31 provinces, the rest of the world, and two sectors: services and non-services. Consumers are classified into five education-based skill groups. Total trade costs are decomposed into objective and institutional trade costs, while institutional migration costs are inferred from interprovincial migration patterns for counterfactual simulations.
The results show that reducing interprovincial institutional trade costs significantly improves the welfare of all consumer groups and generally narrows welfare gaps across skill groups. In particular, facilitating smoother flows in the non-service market plays a more prominent role in raising aggregate welfare and alleviating welfare inequality. Reducing institutional migration costs also increases overall welfare and improves distribution, though with stronger regional heterogeneity. In some net labor-inflow regions, factor price adjustments, rising living costs, and resource constraints may cause welfare losses for certain consumers.
Further analysis shows that, compared with prioritizing reforms in the high-skilled labor market, lowering barriers to the cross-regional mobility of low-skilled labor better supports both efficiency gains and distributional improvement. By incorporating skill heterogeneity, preference heterogeneity, domestic and international trade networks, and labor mobility into a unified analytical framework, this paper provides structural evidence for understanding the efficiency and distributional effects of building a national unified market.
The findings suggest that China should continue to remove institutional barriers to commodity circulation and labor mobility, while improving supporting policy measures to guard against potential negative effects, with a view to promoting the mutual consideration, reinforcement, and integration of efficiency and equity.

JEL: F15, F16, D31

【KeyWords】

National Unified Market, Heterogeneous Consumers, Common Prosperity