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Capital market distortion, firm entry and wage inequality

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  • Beladi, Hamid
  • Chao, Chi-Chur
  • Ee, Mong Shan
  • Yu, Eden S.H.

Abstract

Distortions in the capital market are notable in developing economies like China. By building up a dual production structure with oligopolistic competition in urban manufacturing, this paper investigates the distributional and welfare effects of capital market distortions. We find that in the short run, an increase in the capital market distortion in favor of urban firms can lower both the skilled and unskilled wages. However, in the long run, the preferential policy on reducing capital cost to the urban sector attracts new entry of firms, which can worsen the skilled-unskilled wage inequality in the economy. This firm-entry effect of the capital market distortion on wage inequality is empirically confirmed for China.

Suggested Citation

  • Beladi, Hamid & Chao, Chi-Chur & Ee, Mong Shan & Yu, Eden S.H., 2019. "Capital market distortion, firm entry and wage inequality," China Economic Review, Elsevier, vol. 56(C), pages 1-1.
    • Handle: RePEc:eee:chieco:v:56:y:2019:i:c:11
    DOI: 10.1016/j.chieco.2019.101312
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    Cited by:

    1. Chao, Chi-Chur & Trinh, Cong Tam & Nguyen, Xuan, 2023. "Carbon neutrality and wage inequality in a sustainable economy: New evidence from business dynamism," Economic Modelling, Elsevier, vol. 127(C).
    2. Dianshuang Wang & Xiaochun Li, 2022. "Capital market distortion, agricultural producer service and wage inequality in the small-scale agriculture," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 69(2), pages 391-409, October.
    3. Leonard F. S. Wang & Ji Sun, 2023. "Corporate profit tax, firm entry with unemployment, and income inequality," Bulletin of Economic Research, Wiley Blackwell, vol. 75(2), pages 380-392, April.
    4. Xu, Mengmeng & Lin, Boqiang, 2022. "Energy efficiency gains from distortion mitigation: A perspective on the metallurgical industry," Resources Policy, Elsevier, vol. 77(C).
    5. Dianshuang Wang & Hongyun Huang & Xin Zhao & Fang Fang, 2023. "Green technological progress, agricultural modernization, and wage inequality: Lessons from China," Review of Development Economics, Wiley Blackwell, vol. 27(3), pages 1673-1698, August.
    6. Dianshuang Wang & Xiaochun Li & Zixin Hu & Run Yuan, 2023. "Labor market distortion and its impact on wage inequality in the modernization of small‐scale agriculture," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(4), pages 988-1007, December.
    7. Xu, Mengmeng & Tan, Ruipeng, 2021. "Removing energy allocation distortion to increase economic output and energy efficiency in China," Energy Policy, Elsevier, vol. 150(C).
    8. Yu, Eden S.H. & Chao, Chi-Chur, 2022. "Informal stall business, income inequality, and welfare in a dual economy," International Review of Economics & Finance, Elsevier, vol. 77(C), pages 326-340.

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    More about this item

    Keywords

    Capital market distortion; Lucas paradox; Firm entry; Wage inequality;
    All these keywords.

    JEL classification:

    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy

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