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


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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Fig. 1
Fig. 2


  1. 1.

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

  2. 2.

    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.

  3. 3.

    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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We particularly thank editor, two anonymous referees, Dao-Zhi Zeng, Shota Fujishima, Jacques-François Thisse, Hajime Takatsuka and Xiwei Zhu for providing exceptionally detailed and helpful comments and suggestions to improve this paper. Thanks also extend to the scholars for their highly valuable comments on the presentation of this paper in the 4th and the 5th Asia Seminars in Regional Science at Seoul National University and Harbin Institute of Technology. Financial supports from National Natural Science Foundation of China (No.71503161) and the Jiangsu General Project Fund of Philosophy and Social Sciences (No. 2015SJD348) are gratefully acknowledged.

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Correspondence to Jian Wang.

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Wang, J., Xu, J. Home market effect, spatial wages disparity: an empirical reinvestigation of China. Ann Reg Sci 55, 313–333 (2015).

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JEL Classification

  • R12
  • F1