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The Impact of Economic Geography on Wages: Disentangling the Channels of Influence

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  • Laura Hering
  • Sandra Poncet

Abstract

This paper evaluates the role of economic geography in explaining regional wages in China. It investigates the extent to which market proximity can explain the evolution of wages, and through which channels. We construct a complete indicator of market access at the provincial level from data on domestic and international trade flows; this is introduced in a simultaneous-equations system to identify the direct and indirect effect of market access on wages. The estimation results for 29 Chinese provinces over 1995-2002 suggest that access to sources of demand is indeed an important factor shaping regional wage dynamics in China. We investigate three channels through which market access might influence wages beside direct transport-cost savings: export performance, and human and physical capital accumulation. A fair share of benefits seems to come from enhanced export performance and greater accumulation of physical capital. The main source of influence of market access remains direct transport costs.

Suggested Citation

  • Laura Hering & Sandra Poncet, 2008. "The Impact of Economic Geography on Wages: Disentangling the Channels of Influence," Working Papers 2008-20, CEPII research center.
    • Handle: RePEc:cii:cepidt:2008-20
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    2. Andrzej Cieślik & Bartłomiej Rokicki, 2016. "European Integration and Spatial Wage Structure in Poland," Tijdschrift voor Economische en Sociale Geografie, Royal Dutch Geographical Society KNAG, vol. 107(4), pages 435-453, September.
    3. 岩﨑, 一郎 & Iwasaki, Ichiro & 馬, 欣欣 & Ma, Xin Xin, 2019. "現代中国における男女賃金格差: メタ分析による接近," Discussion Paper Series 689, Institute of Economic Research, Hitotsubashi University.
    4. Breinlich, Holger & Ottaviano, Gianmarco I.P. & Temple, Jonathan R.W., 2014. "Regional Growth and Regional Decline," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 2, chapter 4, pages 683-779, Elsevier.
    5. Cardoso-Vargas, Carlos-Enrique, 2016. "Does the Type of Neighbor Matter?: Evidence of heterogeneous Export Spillovers on Domestic Companies in Mexico," MPRA Paper 70212, University Library of Munich, Germany.
    6. Iwasaki, Ichiro & Ma, Xinxin, 2020. "Gender Wage Gap in China: A Large Meta-Analysis," CEI Research Paper Series 2020-5, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University.
    7. Reinhold Kosfeld & Hans-Friedrich Eckey, 2010. "Market access, regional price level and wage disparities: the German case," Review of Regional Research: Jahrbuch für Regionalwissenschaft, Springer;Gesellschaft für Regionalforschung (GfR), vol. 30(2), pages 105-128, September.
    8. Cardoso-Vargas, Carlos, 2015. "Potencial de mercado y desigualdad salarial, evidencia para México [Market potential and wage inequality, evidence for Mexico]," MPRA Paper 68424, University Library of Munich, Germany, revised 05 Nov 2015.
    9. De Bruyne, Karolien, 2009. "Explaining the Location of Economic Activity. Is there a Spatial Employment Structure in Belgium?," Working Papers 2009/28, Hogeschool-Universiteit Brussel, Faculteit Economie en Management.
    10. Iwasaki, Ichiro & Ma, Xinxin, 2020. "Gender wage gap in China: a large meta-analysis," Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 54, pages 1-17.
    11. Bai, Chong-En & Ma, Hong & Pan, Wenqing, 2012. "Spatial spillover and regional economic growth in China," China Economic Review, Elsevier, vol. 23(4), pages 982-990.
    12. Christoph Hammer & Aurélien Fichet de Clairfontaine, 2016. "Trade Costs and Income in European Regions," Department of Economics Working Papers wuwp220, Vienna University of Economics and Business, Department of Economics.
    13. Cardoso-Vargas, Carlos, 2015. "Potencial de mercado y desigualdad salarial, evidencia para México [Market potential and wage inequality, evidence for Mexico]," MPRA Paper 69696, University Library of Munich, Germany, revised 05 Nov 2015.
    14. repec:elg:eechap:14395_19 is not listed on IDEAS
    15. Rafael Alvarado & Miguel Atienza, 2014. "The role of market access and human capital in regional wage disparities: Empirical evidence for Ecuador," Documentos de Trabajo en Economia y Ciencia Regional 50, Universidad Catolica del Norte, Chile, Department of Economics, revised Mar 2014.
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    17. Antoine Berthou & Lionel Fontagné, 2008. "The Euro Effects on the Firm and Product-Level Trade Margins: Evidence from France," Working Papers 2008-21, CEPII research center.
    18. Joachim Jarreau & Sandra Poncet, 2009. "Export Sophistication and Economic Performance: Evidence from Chinese Provinces," Working Papers 2009-34, CEPII research center.
    19. Muriel Périsse & Clément Séhier, 2019. "Analysing wages and labour institutions in China: An unfinished transition," The Economic and Labour Relations Review, , vol. 30(3), pages 400-421, September.

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    More about this item

    Keywords

    Economic geography; International trade; Wage; Trade openess; Capital accumulation; China;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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