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Cost Competitiveness Comparisons and Convergence in China

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  • Kang, Lili
  • Peng, Fei

Abstract

This paper examines provincial disparities and convergence of sectors in China from a labour cost perspective. We find that the provinces in the Northeast and Coastal regions have strong advantages in the manufacturing sector, while the Primary sector, Construction and Real estate sectors have better cost competitiveness in the Interior and West regions. The decrease of relative unit labour cost (RULC) is mainly due to the faster growth rates of relative labour productivity (RLP) than the growth rate of relative nominal labour costs (RNLC) in most cases. A decomposition analysis shows that there are much more cost competitiveness gains, as well as relative decrease of nominal labour costs and labour productivity improvement during the period 1978-1995 than the years afterwards. We find the fast convergence of RULC is consistent with the fast converging RLP among provinces with static wages, suggesting the importance of institutional factors such as rigid wage setting in Chinese labour markets.

Suggested Citation

  • Kang, Lili & Peng, Fei, 2012. "Cost Competitiveness Comparisons and Convergence in China," MPRA Paper 42449, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:42449
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    References listed on IDEAS

    as
    1. Fleisher, Belton & Li, Haizheng & Zhao, Min Qiang, 2010. "Human capital, economic growth, and regional inequality in China," Journal of Development Economics, Elsevier, vol. 92(2), pages 215-231, July.
    2. Michael Peneder, 2009. "Sectoral Growth Drivers and Competitiveness in the European Union," WIFO Studies, WIFO, number 57710, January.
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    4. Appleton, Simon & Knight, John & Song, Lina & Xia, Qingjie, 2002. "Labor retrenchment in China: Determinants and consequences," China Economic Review, Elsevier, vol. 13(2-3), pages 252-275.
    5. Szirmai, Adam & Ren, Ruoen & Bai, Manyin, 2005. "Chinese Manufacturing Performance in Comparative Perspective, 1980-2002," Center Discussion Papers 28525, Yale University, Economic Growth Center.
    6. Ark, Bart van & Stuivenwold, Edwin & Ypma, Gerard, 2005. "Unit labour costs, productivity and international competitiveness," GGDC Research Memorandum 200580, Groningen Growth and Development Centre, University of Groningen.
    7. W. Michael Cox & Jahyeong Koo, 2003. "China: awakening giant," Monograph, Federal Reserve Bank of Dallas, number 2003a.
    8. Vivian W. Chen & Harry X. Wu & Bart Van Ark, 2009. "More Costly Or More Productive? Measuring Changes In Competitiveness In Manufacturing Across Regions In China," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(s1), pages 514-537, July.
    9. van Ark, Bart, 1998. "Productivity," Journal of the Japanese and International Economies, Elsevier, vol. 12(2), pages 171-174, June.
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    Cited by:

    1. Lili Kang & Fei Peng, 2018. "Economic Reform and Productivity Convergence in China," Arthaniti: Journal of Economic Theory and Practice, , vol. 17(1), pages 50-82, June.
    2. Françoise Lemoine & Grégoire Mayo & Sandra Poncet & Deniz Ünal, 2014. "The Geographic Pattern of China's Growth and Convergence within Industry," Working Papers 2014-04, CEPII research center.

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    More about this item

    Keywords

    Unit Labour Cost; Regional Development Planning; China;
    All these keywords.

    JEL classification:

    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy
    • J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General

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