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

In: International Economic Integration and Domestic Performance

Author

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  • Fariha Kamal
  • Mary E. Lovely
  • Puman Ouyang
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

  • Fariha Kamal & Mary E. Lovely & Puman Ouyang, 2017. "Does deeper integration enhance spatial advantages? Market access and wage growth in China," World Scientific Book Chapters, in: Mary E Lovely (ed.), International Economic Integration and Domestic Performance, chapter 14, pages 255-270, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789813141094_0014
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    Cited by:

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    2. 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.
    3. Pi, Jiancai & Zhou, Yu & Yin, Jun, 2013. "International factor mobility, monopolistic competition, and wage inequality," Economic Modelling, Elsevier, vol. 33(C), pages 326-332.
    4. Cong S. Pham & Mary E. Lovely & Devashish Mitra, 2017. "The home-market effect and bilateral trade patterns: A reexamination of the evidence," World Scientific Book Chapters, in: Mary E Lovely (ed.), International Economic Integration and Domestic Performance, chapter 8, pages 135-152, World Scientific Publishing Co. Pte. Ltd..
    5. 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.
    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. Hongbing Li & Hongbo Cai & Suparna Chakraborty, 2019. "Market Access, Labor Mobility, and the Wage Skill Premium: New Evidence from Chinese Cities," Open Economies Review, Springer, vol. 30(5), pages 947-973, November.
    8. He, Xiaobo, 2013. "Wages and Access to International Markets: Evidence from Urban China," MPRA Paper 44537, University Library of Munich, Germany.
    9. 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.
    10. Zahra Dehghan Shabani & Ali Hussein Samadi & Amene Zare, 2017. "Does Market Potential Matter? Evidence on the Impact of Market Potential on Economic Growth in Iranian Provinces," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 21(4), pages 847-863, Autumn.

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    Keywords

    International Trade; Foreign Direct Investment; Environmental Standards; Labor Standards;
    All these keywords.

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration

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