Urban segregation and consumption inequality: Does hukou conversion matter in China?

This paper develops a simple theoretical model and offers empirical evidence of urban segregation on consumption inequality between rural‐to‐urban migrants and urban residents. Our analyses are based on the 2007 China Household Income Project (CHIP) and the 2017 China Migrants Dynamics Survey (CMDS) data. Results obtained from propensity score matching and 2SLS methods show that urban segregation caused by the hukou system leads to significant consumption inequality between rural‐to‐urban migrants and urban residents. Hukou conversion matters for improving migrants’ consumption, but when or how hukou was transferred makes little difference. Besides, we find that the disparity in consumption between rural‐to‐urban migrants and urban residents is more prominent in the higher‐income group or in cities with stricter restrictions on hukou conversion. Finally, our results are robust to a series of sensitivity checks.