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Capital market distortion, firm entry and wage inequality

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  • Beladi, Hamid
  • Chao, Chi-Chur
  • Ee, Mong Shan
  • Yu, Eden S.H.

Abstract

Distortions in the capital market are notable in developing economies like China. By building up a dual production structure with oligopolistic competition in urban manufacturing, this paper investigates the distributional and welfare effects of capital market distortions. We find that in the short run, an increase in the capital market distortion in favor of urban firms can lower both the skilled and unskilled wages. However, in the long run, the preferential policy on reducing capital cost to the urban sector attracts new entry of firms, which can worsen the skilled-unskilled wage inequality in the economy. This firm-entry effect of the capital market distortion on wage inequality is empirically confirmed for China.

Suggested Citation

  • Beladi, Hamid & Chao, Chi-Chur & Ee, Mong Shan & Yu, Eden S.H., 2019. "Capital market distortion, firm entry and wage inequality," China Economic Review, Elsevier, vol. 56(C), pages 1-1.
    • Handle: RePEc:eee:chieco:v:56:y:2019:i:c:11
    DOI: 10.1016/j.chieco.2019.101312
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    More about this item

    Keywords

    Capital market distortion; Lucas paradox; Firm entry; Wage inequality;
    All these keywords.

    JEL classification:

    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • O18 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Urban, Rural, Regional, and Transportation Analysis; Housing; Infrastructure
    • R58 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Regional Government Analysis - - - Regional Development Planning and Policy

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