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The effects of free trade agreements on regional wages in China

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  • Song, Tao
  • Cieslik, Andrzej

Abstract

We empirically study the effects of free trade agreements on regional wages in China using Redding and Venables’ (2004) extended model and manufacturing firm-level data in China from 2000 to 2007. We show that although free trade agreements can, in general, increase firms’ average wage level, they also contribute to increasing the wage gap in China. We also find that free trade agreements can have different effects on firms’ wages across China. In particular, they have stronger effects on average wage levels in land border regions than in coastal regions. Moreover, although firms in land border regions may be located closer to the partner countries of free trade agreements, they may still prefer to use shipping to transport goods. Our findings have important policy implications. In particular, we suggest that free trade agreements with China’s western neighbors should be accompanied by the development of appropriate land transportation networks. Moreover, income tax policy regimes should be differentiated across regions in China.

Suggested Citation

  • Song, Tao & Cieslik, Andrzej, 2020. "The effects of free trade agreements on regional wages in China," Economic Systems, Elsevier, vol. 44(3).
    • Handle: RePEc:eee:ecosys:v:44:y:2020:i:3:s0939362520300790
    DOI: 10.1016/j.ecosys.2020.100772
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    Cited by:

    1. Lintunen, Julia, 2021. "An overview of China's regional trade agreements," BOFIT Policy Briefs 1/2021, Bank of Finland Institute for Emerging Economies (BOFIT).

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    More about this item

    Keywords

    China; Firm-level data; FTA; Land border; Sea border; Wage inequality;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
    • J61 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Geographic Labor Mobility; Immigrant Workers

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