Capital market distortion, firm entry and wage inequality

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

China Economic Review, 2019, vol. 56, issue C, -

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.

Keywords: Capital market distortion; Lucas paradox; Firm entry; Wage inequality (search for similar items in EconPapers)
JEL-codes: L52 O18 R58 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:chieco:v:56:y:2019:i:c:11

DOI: 10.1016/j.chieco.2019.101312

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