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migration are removed, all wage and most income inequality disappears.Zhai and Wang (2003) used a complex CGE model that links macro sectorswith micro household-level data to simulate the effect of labor mobility onthe narrowing of the rural–urban gap. Although their estimate is lower thanthat presented by Whalley and Zhang, the effects are still very significant.3. Migration as a Driving Force of UrbanizationPopulation migration is an important factor in the process of urbanizationand economic development. Prior to reform and opening-up, however, thepace of urbanization in China was stagnant and even decreased during theten years of the Cultural Revolution (see Figure 4). The relative declineof the urban share of the total population can be attributed to two factors.One is that the enforcement of the hukou system placed tight restrictions onrural–urban migration. The other is that the natural growth rate of the ruralpopulation was much higher than that of the urban population.Since reform and opening-up, the pace of urbanization in China has pickedup dramatically. From 1978 to 2004, the urban share of the total populationincreased from 17.9 percent to 41.8 percent, with an average annual growthrate of 0.92 percentage points. During the same time period, the averagegrowth rate of the urban population was 4.4 percent, significantly higherthan the natural growth rate of the total population, which dropped from1.2 to 0.59 percent.Figure 4. China’s Urban Population Growth and Urbanization: 1957-2004256Source: National Bureau of Statistics, China Statistical Yearbook (1990, 2005), Beijing: ChinaStatistics Press, 2005.