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The Annals of Regional Science

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15-09-2015 | Special Issue Paper

Home market effect, spatial wages disparity: an empirical reinvestigation of China

Authors: Jian Wang, Junqian Xu

Published in: The Annals of Regional Science | Issue 2-3/2015

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Abstract

It is argued that the size of a region affects the spatial configuration of economic activities, known as the home market effect (HME). Concerning the definition of HME, it can be interpreted from different aspects, but most empirical studies testing HME focus mainly on investigating firm share and exports. This paper empirically investigates the HME in terms of wages in the case of China by using panel data for the period 1980–2012. We find that the wages in coastal regions are higher than those in the interior, due to the size differences between regions. Additionally, regional inequality in wages between the coastal and interior regions evolves in an inverted U-shaped curve during periods of regional integration. The evolution of the space-economy in China during the past three decades supports the inverted U-shaped pattern predicted by the theoretical models of spatial economics.

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The agricultural sector is assumed to exhibit a constant return to scale, perfect competition, homogeneity of goods, and zero transport costs.

It is noteworthy that, despite the close relationship between \(k_{i} (T)\) (firm share) and \(w_{i} (T)\) (wages) shown in (10), \(k_{i} (T)\) has a more complicated pattern when it is considered in multiregional situations. Zeng and Uchikawa (2014) investigate the relation between firm share and transport costs in a multiregional space and find that the \(k_{i}(T)\) presents a more complicated pattern response to T. This result implies that we have to be prudent when testing HME in multiple regions. It seems reasonable to choose to empirically investigate the U-shaped pattern in terms of wages rather than firm share.

The two main regions defined in this paper are the coastal ones and the interior ones. The coastal region consists of Liaoning, Beijing, Tianjin, Hebei, Shandong, Jiangsu, Shanghai, Zhejiang, Fujian, and Guangdong; the interior consists of the central provinces (Shanxi, Anhui, Jiangxi, Hunan, Henan, Hubei, Heilongjiang, Jilin) and those in the west (Gansu, Qinghai, Ningxia, Xinjiang, Inner Mongolia, Guangxi, Sichuan, Chongqing, Guizhou, Yunnan, and Shaanxi). We have excluded Xizang and Hainan from the western and coastal regions, respectively, due to lack of data.

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Title: Home market effect, spatial wages disparity: an empirical reinvestigation of China
Authors: Jian Wang
Junqian Xu
Publication date: 15-09-2015
Publisher: Springer Berlin Heidelberg
Published in: The Annals of Regional Science / Issue 2-3/2015
Print ISSN: 0570-1864
Electronic ISSN: 1432-0592
DOI: https://doi.org/10.1007/s00168-015-0700-2

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