Market Access and Individual Wages: Evidence from China.
with Sandra Poncet, 2010, Review of Economics and Statistics
We consider the effect of geography, and in particular market access, on wages using individual data from 56 Chinese cities in 11 different provinces. By applying New Economic Geography theories to individual-level survey data, we contribute to the analysis of growing
wage disparities within China, and even within provinces. We evaluate the extent to which market proximity can explain inter-individual wage heterogeneity and growing wage inequality within Chinese provinces.
We present a simple New Economic Geography model that links wages to individual characteristics and market access. The latter is calculated as a transport cost weighted sum of surrounding locations’ market capacity. Based on 1995 data on around 6,000 Chinese workers, and after controlling for individual skills and local factor endowments, we find that a
significant fraction of the inter-individual differences in returns to labor can be explained by the geography of market access. We further check whether the relationship between market access and wages holds equally for all worker types. We find greater wage sensitivity to market access for high-skilled workers and for workers in private, and particularly foreignowned, firms.