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Does deeper integration enhance spatial advantages? Market access and wage growth in China

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  • Kamal, Fariha
  • Lovely, Mary E.
  • Ouyang, Puman

Abstract

New economic geography models predict that costly transport and the spatial distribution of demand affect the profits firms can earn in different locations, leading to higher wages for workers employed in cities with better geographic access to markets. In light of the dramatic embrace of globalization and labor market reforms that occurred in China after 1995, we measure the extent to which the influence of market access on wages strengthened and influenced wage growth over the subsequent period. Using survey data from two waves of the Chinese Household Income Project, we find that urban wages became more strongly influenced by access to markets, including domestic markets, between 1995 and 2002. The estimated elasticity of the wage with respect to market access of the worker's location more than doubles over the period. We also find that market access influences wages paid to both skilled and unskilled workers. Within provinces, we find no significant relationship between market access and either group's wages when adjusted for living costs, as expected in the context of internal labor migration. However, across provinces wages net of living costs are positively correlated with the market access of the worker's location. Consistent with deregulation of wage setting in state enterprises, the influence of market access on wages strengthened most for state-owned firms. A decomposition of the change in the mean wage indicates that market access is an economically important factor explaining the growth in average wages between 1995 and 2002.

Suggested Citation

  • Kamal, Fariha & Lovely, Mary E. & Ouyang, Puman, 2012. "Does deeper integration enhance spatial advantages? Market access and wage growth in China," International Review of Economics & Finance, Elsevier, vol. 23(C), pages 59-74.
  • Handle: RePEc:eee:reveco:v:23:y:2012:i:c:p:59-74 DOI: 10.1016/j.iref.2011.10.006
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    Cited by:

    1. Pi, Jiancai & Zhou, Yu, 2014. "Foreign capital, public infrastructure, and wage inequality in developing countries," International Review of Economics & Finance, Elsevier, vol. 29(C), pages 195-207.
    2. Ouyang, Puman & Zhang, Teng & Dong, Yan, 2015. "Market potential, firm exports and profit: Which market do the Chinese firms profit from?," China Economic Review, Elsevier, vol. 34(C), pages 94-108.
    3. Pi Jiancai & Ge Yang & Yin Jun, 2017. "The Impacts of Rural Property Rights on Urban Unemployment, Wage Inequality, and Welfare in Developing Countries," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 17(1), pages 1-15, February.
    4. Pi, Jiancai & Zhou, Yu & Yin, Jun, 2013. "International factor mobility, monopolistic competition, and wage inequality," Economic Modelling, Elsevier, vol. 33(C), pages 326-332.
    5. Pham, Cong S. & Lovely, Mary E. & Mitra, Devashish, 2014. "The home-market effect and bilateral trade patterns: A reexamination of the evidence," International Review of Economics & Finance, Elsevier, vol. 30(C), pages 120-137.
    6. Chun, Natalie & Hasan, Rana & Rahman, Muhammad Habibur & Ulubaşoğlu, Mehmet A., 2016. "The role of middle class in democratic diffusion," International Review of Economics & Finance, Elsevier, vol. 42(C), pages 536-548.
    7. He, Xiaobo, 2013. "Wages and Access to International Markets: Evidence from Urban China," MPRA Paper 44537, University Library of Munich, Germany.

    More about this item

    Keywords

    Market access; Wages; New economic geography;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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