A1 - Laura Hering
A1 - Sandra Poncet
TI - The Impact of Economic Geography on Wages: Disentangling the Channels of Influence
IS - 2008-20
T3 - Working Papers
KW - Economic geography
KW - International trade
KW - Wage
KW - Trade openess
KW - Capital accumulation
N2 - This paper evaluates the role of economic geography in explaining regional wages in China. It investigates the extent to which market proximity can explain the evolution of wages, and through which channels. We construct a complete indicator of market access at the provincial level from data on domestic and international trade flows; this is introduced in a simultaneous-equations system to identify the direct and indirect effect of market access on wages. The estimation results for 29 Chinese provinces over 1995-2002 suggest that access to sources of demand is indeed an important factor shaping regional wage dynamics in China. We investigate three channels through which market access might influence wages beside direct transport-cost savings: export performance, and human and physical capital accumulation. A fair share of benefits seems to come from enhanced export performance and greater accumulation of physical capital. The main source of influence of market access remains direct transport costs.
ER -