| There are already tremendous amount of literatures on urbanization research, some of which only study internal urban structure from the perspective of architecture planning, some of which only concentrate on space distribution of economic activities between city and countryside from the angle of geography, while some also lay more emphasis on urban crimes and population mobility from the angle of sociology. However, few of them concentrate on urbanization and its related economic development from the perspective of mainstream economics. This is the current situation that the contemporary research on urbanization is going ahead.Only from the perspective of mainstream economics, most of the theoretical researches on urbanization focus on the trade-off between increasing returns and transport costs. Their general conclusion is that increasing returns derived form the division of labor or scale economies in production bring about increasing benefits to production, while the cruel distance in geography (the Australian' old saying) could exert a natural restriction on these increasing returns, as a result an equilibrium urbanization process will generate out of the interaction between the positive centripetal force and centrifugal force, where "economic man" has the freedom of choosing his economic location and mobility mode, can intelligently response to the economic information around them, production factors can flow and be allocated freely, consequently the trade-off between the increasing returns derived and the transport costs incurred in every location will make the urbanization level in an economy endogenously formed, thereby the related mode of division of labor, disparity between city and countryside, city size, urban location, and urban systems are all in equilibrium state.The advantages of this perspective lies in, firstly it pulled back the abandoned contents in mainstream economics and deal with the space problem skillfully by using the notion of "transport costs", thus the historically incompatible puzzle between space and competition framework can be solved. Secondly, it discarded the framework of perfect competition held by mainstream economics and employ the incomplete competition, which is an ideal framework to deal with the increasing returns and efficiency advantages, thereby the passive situation faced with the Neo-Classical economics 1 has been changed. Third, it overcame the uni-equilibrium solution that Neo-Classical economics gave to urban economic problems, and use the multi-equilibrium result explaining the problem such as multi-center and urban systems in urbanization process.However, the disadvantage of this perspective is that it gave no consideration to an country's law systems, government services, management level, household systems, bank system competition, property rights protection, social trust ect. Institutional factors and their impact onurbanization and economic development, thereby it can't explain satisfyingly the urbanization problems in transition and developing countries. In fact, the urbanization problems in transition and developing countries are very complicated, some with relation to transport condition, infrastructure, nature, geographical factors, while others with relation to discriminatory political, economic, social institutions and rule of law between city and countryside. In some sense, we can say that urbanization in these countries is a pure institutional problem. For example, if you study China's urbanization, you will find that it not a pure economic problem but a mixture of Heavy and Chemical Industry Strategy, political and social stability needs, socialist opposition to capitalist countries' economic and social blockage since 1949. In recent years, we often talk about industrialization, development by way of industrialization, without any concern to urbanization, or deliberately forgetting or playing down urbanization, which is not a result of people's foolishness in developing countries but the explaining incapability and helplessness of economics to urbanization and its related questions and people's finite and superficial knowledge.In neo-economics viewpoint, market structure is perfect competition or its equivalent form, production follows constant return or decreasing return technology, production factors are perfectly divisible, geographical location is an adjunct of related factor therefore it is meaningless, as a result, economic activities will scatter extensively or evenly over the geographical space, where city as well as other form of human or firm's concentration doesn't exist in realty. In agricultural times, this is reasonable in that it can explain the reality where a few small cities exist and exert less impact on the economy. However, this is an unreasonable explaining for the times of industrialization and hereafter, because scale economies in production makes transaction efficiency and its cost advantages more important than before, thus city and its related economic problems came into the eye of economists. Unfortunately, economists doesn't have appropriate analytical tools to deal with urban economy which has in essence great scale economies that is incompatible with their framework of pure competition, and also with the characteristics of saving transport and transaction costs, which is ignored or exogenously given in neo-economics; urban economy often involve multiple equilibrium while the classical situation of neo-economics is uni-equlibrium. Nowadays we enter into times of information and network, when transport costs and transaction costs can be saved substantially. Moreover, the problems such as household register system, population mobility, people or firms free choice of their vocation and economic space ect. are still severely restricted their countries' urbanization and economic development. So, if we still ignore city, or still use constant returns, zero transport costs to explain city, we can't gain a satisfied understanding of city, needless to say its related economic activities and why people like to agglomerate in space.Today's economics becomes very different from its precursor. Today economist doesn't persist in constant return, instead they have a good understanding of increasing return; in the past economics deliberately ignored transport cost and space in its framework, that was because these conditions brought about analytic embarrassment, today it can analyze these questions because it has incomplete competition framework and multi-equilibrium analytic tools; in the past economics often took various institutions as given because these institutions incurred uncertainty, so economist was content with overly simplistic analysis, today New Institutional Economics, New Classical Economics, Game theory, Industrial Organization, Experimental Economics, Behavior Economics ect. have a deep understanding of institutions, therefore it is inappropriate for us to ignore institutions forever, and otherwise we couldn't understand the current society.In order to study the urbanization and related economic development from a systematically economic way, this thesis employs a notion we named "transaction efficiency" which can describe the developing countries' case as well as the developed countries' case. In the transaction efficiency framework, the biggest difference of their urbanization between developing countries and developed countries is not a result of their different characters of economic man but their different aggregated transaction efficiency which is derived from their various political, judicial, social, economic institutions as well as their natural, geographical endowment. In developed countries or market economies, their political, judicial, social and economic institutions take private property for granted, endowing economic man with more freedom to choose his or her economic activities, therefore the transaction efficiency are mainly restricted by their natural, geographical endowment. With economic development and technology progress, the restriction from their endowment can be alleviated, so urbanization in these countries are endogenous result of their economic development; however, in developing countries and transition countries, such situation are totally reversed. They gave limited or even no place to private property, neither approved of free choice of their vocations and mobility. Many industries have severe entry regulations. Consequently, the total costs of conducting economic activities by economic man are much' higher than that of the developed and market counterparts. This strategy can quickly raise the level of industrialization and industries output at state's will, but the expenses are legged urbanization, inharmonious economic development, slow social and civil transformation to modern society.In this framework, different level of urbanization and economic development are a result of different transaction efficiency, and also share the same mechanism and power, that is Smithan' "self interests", "self benefits", or Chinese old saying "if person doesn't care about himself, the heaven and land will collapse". Shen Zi said: "now a rabbit is running, one hundred persons arechasing it, this is not this rabbit is so big to be shared by one hundred persons but any person can claim its property right. If its property right is pending, Yao will chase it, let alone the public. There are so many rabbits on the market, walking strangers dare not take it, this is not they don't like rabbit but that its property right is given. Even though these strangers are selfish, they wouldn't strive for a rabbit. So when managing the world or a country, the most important thing is to clearly define property rights."2 Schumpeter had said that entrepreneur's pursuit of fortune was the motive power for economic development, which is the same saying as that of Shen Zi, that is self benefit of person is the original motive force for economic development. According to this reason, person in the world all care about his self interest, therefore the mode of economic development should be same anywhere. However, the key problem lies in whether a society's aggregated transaction efficiency facilitate or acknowledge this "self interest", or "selfish benefits" to be a motive power of its economic development and civilization evolution. If their aggregated transaction efficiency are high, so that their economic development can have a quick pace, otherwise in low pace. It seems that, a person is so ordinary in home country, but when going abroad, he became an able person. That is not because he became a new one but because the new environment make him specialized and diligent, therefore he can easily choose his division of labor with the other persons, thus his productivity is increased.The general framework of this thesis is general equilibrium. At the beginning, we suppose the quantity and price of factors and products was given, economic man choose his action by maximizing his own profit or utility; then, we define production technology, employing workers, producing factors and products, make the product, factor and labor market clear out under the assumption of free mobility of labor and free location choice of firm, then urbanization level can be achieved endogenously in which the aggregated transaction efficiency is an important parameter to influence this general equilibrium. The comparative static shows that different transaction efficiency can influence macro urbanization and economic development by way of exerting its impact on the whole process or some of its constraints. Because our country's situation is very different from market economy, we change some constraints of the model, that is structural difference in transaction efficiency and incomplete labor mobility, and then gain a good understanding of our urbanization process and its related economic development. Finally, we employ empirical experiences before and after 1978 and econometric tests to test our model, the results show that the multiple factors we choose to represent our transaction efficiency are consistent and can be a good proxy for our transaction efficiency, and we also find that this transaction efficiency is really a statically important factor influencing our urbanization process and economic development.If there are some difference between our framework and others, we know that the difference lies in:Firstly, we first establish a analytic framework of transaction efficiency, in which the overlooked transport cost, transaction cost or organizational cost emphasized by New Institution Economics are compatible to the Neo-Classical Economics framework.The specific contents of our framework include: (1) give a clarified definition to TE, let it to be a unit time expense of doing the average transaction activity or the quantity of conducting the average transaction activity in a given time period. Obviously, it can handily measure the TC of conducting transaction activity by economic man, but also response to the transport distance in transaction process faced with economic man, therefore letting TC, transport cost sharing the same analytic framework.; (2) systematically investigate the determinants, contents of TE, maintaining that TE can depend either on natural, geographical environment or on science and technology, infrastructure, political stability, property right regime, rule of law, educational background, opening level ect. Thus synthesize the "Geography Hypothesis" and "Institution Hypothesis", and also drawing lesson from analytics of agglomeration framework; (3) classify TE into two components: hard and soft. The former depend on nature, geography, infrastructure, transaction technology ect. while the later depend on various political, economic, social institutions ect. thereby establishing a fundament to compare TE structure in different countries and regions, making TE comparison between different countries and regions feasible. (4) measure TE by econometric method. Because of TE involves many factors, whether these factors can be converged to TE indicator is a key point of our empirical tests. We ask for help from advanced econometric tools to realize our hypothesis, and we succeed. (5) Compare the difference and linkage between our framework and "Geography Hypothesis", "Institution Hypothesis", and agglomeration framework, pointing out our priority and advantages of using our framework to analyze urbanization and economic development.A famous Chinese economist named Yang Xiao who first brought up the notion of TE, hereafter it became a important and often mentioned concept in his papers and works, however it had no systematic definition about its meaning, determinants, contents, structure, classification ect., neither it was analyzed as a analytic framework but as an research aspect of interaction between urbanization process and related division of labor. This thesis conducts what Yang couldn't conduct in his papers and works, and uses TE as an analytic framework to systematically analyze urbanization and economic development; Coase, North, Williamson, Steven Chang, ect. established TC analytic framework, which addressed the importance of impact of organization cost, â– but didn't involve the impact of natural, geographical, transportation, infrastructure,transaction technology ect. to urbanization and economic development. In practice, this analytic method was faced with many problems. This thesis covers the impact of natural, geographical, infrastructure, transaction technology as well as TC, institution, economic organization to urbanization and economic development, and also employs easily measured econometric methods to analyze their effects; Agglomeration Economics gives consideration to impact of transport cost to urban economy but didn't address the impact of institution, organization and TC, while our thesis makes up this shortcoming and make it an appropriate method to analyze situation of developing and transition countries.Secondly, we first use this general framework to systematically analyze the urbanization and related economic development in developing and transitional countries. In this framework, developing countries as well as transitional countries can share the same framework, mechanism, the only difference between them lies in their initial condition and constraint that is their aggregated TE and their structure.Yang Xiaokai ect New Classical Economist has used the trade-off between TE and division of labor to create urbanization, dual structure of urban and rural area, the best urban hierarchy, urban price escalation ect. however, they didn't expound the relationship between urban economic development, urban economic growth, learning, innovation in urban area and TE, neither they systematically investigated the mechanism of TE and urbanization as well as the related empirics, while our thesis conducts these research and puts them to Chinese and foreign experiences in the history and to statistic test. Krugman and Fujita ect. has used trade-off between scale economies and transport cost to explain urbanization but their opposite impact of agricultural products and industrial products couldn't be convincing, neither they gave any place to the impact of political, economic, social institutions, property right system, competitive bank system ect. nor they took TE as a systematic framework of analyzing urbanization and related economic development. Henderson ect had studied urbanization process, but they didn't take into account of the effect of political, economic and social institutions such as firm's free choice of location, people and factor's free mobility, product's free trade ect., while our thesis give them enough place and converge them to one factor-TE to analyze its relationship with urbanization and related economic development.The work of the above economists mainly aimed at market economy and took it as their starting point, while this thesis revised their framework and make it more appropriate to analyze developing and transitional countries. Take Chinese urbanization as an example, why has Chinese urbanization lagged more behind its economic development? That is not farmers didn't want to enter city and participate in the complicated division of labor and share related returns derived, butthey didn't have any access to city under natural, geographical environment, and various political, economic, social institutions, which restrict them to choose their vocation, location and industry freely. In some regions such as Sichuan Province, where natural and geographical environment is very execrable so that their cost of going out and looking for jobs is too high to do so; in other places such as northeast of China and Shaan'xi province, peasants can go out for job but when they came back several years later they are usually faced with the risk of land confiscation, moreover, they often take risk of repatriation in the name of harming city security. Some peasants have worked outside for several years, however their wages have been behindhand, not to say enjoying any social insurances. Under discriminatory political, economic and social institutions and equal opportunity for health care, social security, their costs of pursuit of their self benefit, happiness is much high than their endurance.Therefore, in our analytic framework, the developing and transitional countries could share the same framework, the only difference between them is their different TE structure, the mechanism behind their urbanization and economic development is the same, that is economic man always pursue his self interests. This is not boosting but a result of our long-term consideration of economic theory and observation of our daily life.Thirdly, the research in this thesis is ultimately out of our institutional concerns, which shows that the aim of this thesis is to analyze and solve the realistic problems that if the people in developing and transitional countries want to improve their health, happiness and life level, promote their economic development and the transformation of their social structure from agriculture to urban civilization, they should fix their attention more on their political, economic, and social institutions, reforming their unreasonable institutions, getting rid of unfavorable regulations, strictly enforcing the favorable policies and measurement, thereby they can raise the capability of overcoming the limits from nature, geography, increasing the TE in the whole economy, pushing the division of labor and economic development.Specifically, this can be seen from some of our conclusions derived in this thesis, for example,Conclusion 1: by using the TE framework, we knew that the rural-urban disparity in China is not only the result of its inferior nature and geography environment but more of its discriminatory political institutions, household register system, immigration, welfare, unemployment insurance, farmland system, urban employment policy ect. Most of these institutions and policies are purely artificial and difficult to eliminate. This situation is very special when compared with that of the market economy. This render us to the solution of taking both the technological, transportation,infrastructure measurement as well as various political, social, and economic measurement especially about the free mobility, free choice of location and profession, and equal opportunity in polity, economy, and society.Conclusion 2: our analysis on the linkage mechanism between TE and urbanization shows that a very complicated linkage exists between urbanization and economic development.First, an increase of TE can promote the fluidness and allocation efficiency of labor and production factors, improving the level of individual division of labor as well as firm's scale economy, thereby push economic development by way of industrialization, which is an indirect mechanism in that increase of TE either from natural, geographical and technological improvement or from institutional innovation is a necessary condition for urbanization and economic development, without this increase, urbanization and economic development will be slow and difficult to achieve.Second, population and firm's free mobility, and improvement of the law system, property right system, trust mechanism, competitive bank system, government services ect. will decrease the cost of free mobility both of population and firm, thus can directly push the level of urbanization and economic development. On the other hand, urbanization can increase the level of TE by concentrating the firm and population on a relatively small area because the transaction cost and transport cost related can be saved substantially and also specialization and division of labor in urban area could be easily conduct both in terms of information and knowledge fluidity, learning or innovation efficiency.In the past, we often talk about the importance of industrialization, giving no place of urbanization, not to say its impact to industrialization and economic development through way of TE. That is because mainstream economics has no appropriate analytic tools to deal with this situation, which is in return a direct cause for deliberation and ignorance of urbanization and its mechanism. Recent progress in Economics tell us that if we still ignore the mechanism between urbanization and TE, we couldn't understand why there are so many people and firms like to fly to the city at the expense of paying more and more land price and enduring pollution and congestion, neither do we have a good understanding of the mutual mechanism of industrialization, urbanization, and economic development. Reality in many developing countries including China is a good illustration.Fourth, our research on Chinese urbanization and related economic development is more revelatory than other studies. We can gain a good understanding by taking into consideration of our historical stage, the basic questions and tasks to be solved in the future > the main conclusions we made in the thesis.First, now our country is in a middle stage of its industrialization, when industrialization has some character of decreasing return, also the impact of city and urbanization has been increasingly important than ever, and inevitably become one of the strongest support for economic growth in 21st century. Therefore, studying these problems is our duty-bound responsibility. Such is the practical relevance of our thesis.Second, many of the contemporary policy-makers and decision-makers have been recognized the importance urbanization to Chinese economic development. Many administrators have talked about the problem of "big city's priority or middle and small city priority"; some local officials also have mentioned the saying of "managing city". If they want to have clear solutions to these questions and guide these practices, they must systematically study the foreign urbanization theory. Such is the policy relevance of our thesis.Third, urban economics in contemporary China lagged more behind that of the west countries; moreover, our statistics don't lay more emphasis on collecting and arranging urban data, so that it is detrimental to the progress of China's urban economics. So, it is very necessary for us to learn the foreign theory of urban economics systematically with incorporation of Chinese practices, partly because we can lay sound foundation to Chinese urban economics in this process, partly because we can employ Chinese practices to test the foreign urban theory and develop Chinese urbanization theory. Such is the theoretical relevance of our thesis.The main conclusions we derived in the text are as follows.First, dynamic improvement of TE can be an objective measurement of social progress human society made in the past centuries. So it is recommendable for us to analyze urbanization and economic development from this perspective both in terms of recovering the old tradition and making a theoretical breakthrough.Second, relationship between industrialization and urbanization is of great concern to Chinese government and scholars. The general opinion is that industrialization is the foundation of urbanization. Otherwise, urbanization will not exist. Our conclusion is that there is no unidirectional linkage between them, to a large extent, urbanization which can also be a motor power of economic development can be a forerunner of industrialization.Third, there is no excess urbanization; neither is there "blind labor flows". In fact, labor flows is only an honest follower of high TE, high division of labor and high income level. There are no irrational peasants but rational economic man in reality. Excess urbanization trap in developing countries doesn't tell us anything but dysfunction of government or government failure in serving people and firms with adequate public services. Rural-urban disparity is not afraid, what is afraid of is artificial discriminatory institutions. Free mobility of labor, factors, technology, knowledge,...
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