IDEAS home Printed from https://ideas.repec.org/a/eee/chieco/v77y2023ics1043951x22001596.html
   My bibliography  Save this article

Labor price distortion and export product markups: Evidence from China labor market

Author

Listed:
  • Mingyi, Wang
  • Zhongyi, Zhang
  • Xiaoyu, Liu
  • Siwei, Xu

Abstract

In the context of expanding the new pattern of opening-up, how to improve export product markups is of great significance to China's high-quality export development. This paper systematically investigates the impact of labor price distortion on the markups of export products by using the combined data of Chinese industrial enterprise database and customs database from 2000 to 2013. The results show that labor price distortion significantly inhibits the increase of export product markups of China's manufacturing enterprises, and the above conclusion is still robust after using various methods for robustness test, but this effect is heterogeneous due to different factor intensity, export destination, trade mode, region and ownership. The mechanism tests demonstrate that labor price distortion inhibits the increase of markups through inhibiting R&D innovation, reducing factor allocation efficiency and causing low efficiency of enterprise scale, among which R&D innovation is the most important channel. In addition, this paper examines the impact of labor price distortion on the change of industry aggregated markups, and finds that intra-enterprise effect and entry effect are the main channels for labor price distortion to inhibit industry aggregated markups, while inter-enterprise effect and exit effect have little impact on industry aggregated markups. Our findings provide a new perspective for reinterpreting the mystery of low markups of Chinese export product, and provides an important decision-making basis for the improvement of China's export product markups.

Suggested Citation

  • Mingyi, Wang & Zhongyi, Zhang & Xiaoyu, Liu & Siwei, Xu, 2023. "Labor price distortion and export product markups: Evidence from China labor market," China Economic Review, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:chieco:v:77:y:2023:i:c:s1043951x22001596
    DOI: 10.1016/j.chieco.2022.101901
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1043951X22001596
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.chieco.2022.101901?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. repec:clu:wpaper:0708-12 is not listed on IDEAS
    2. Jan De Loecker & Pinelopi K. Goldberg & Amit K. Khandelwal & Nina Pavcnik, 2016. "Prices, Markups, and Trade Reform," Econometrica, Econometric Society, vol. 84, pages 445-510, March.
    3. Thierry Mayer & Marc J. Melitz & Gianmarco I. P. Ottaviano, 2021. "Market Size, Competition, and the Product Mix of Exporters," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 5, pages 109-150, World Scientific Publishing Co. Pte. Ltd..
    4. Machado, José A.F. & Santos Silva, J.M.C., 2019. "Quantiles via moments," Journal of Econometrics, Elsevier, vol. 213(1), pages 145-173.
    5. Maurice Kugler & Eric Verhoogen, 2012. "Prices, Plant Size, and Product Quality," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(1), pages 307-339.
    6. Chad Syverson, 2004. "Market Structure and Productivity: A Concrete Example," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1181-1222, December.
    7. Marc J. Melitz & Sašo Polanec, 2015. "Dynamic Olley-Pakes productivity decomposition with entry and exit," RAND Journal of Economics, RAND Corporation, vol. 46(2), pages 362-375, June.
    8. Jan De Loecker & Frederic Warzynski, 2012. "Markups and Firm-Level Export Status," American Economic Review, American Economic Association, vol. 102(6), pages 2437-2471, October.
    9. Flora Bellone & Patrick Musso & Lionel Nesta & Frederic Warzynski, 2016. "International trade and firm-level markups when location and quality matter," Journal of Economic Geography, Oxford University Press, vol. 16(1), pages 67-91.
    10. Yi Lu Jr. & Linhui Yu Jr., 2015. "Trade Liberalization and Markup Dispersion: Evidence from China's WTO Accession," American Economic Journal: Applied Economics, American Economic Association, vol. 7(4), pages 221-253, October.
    11. Olley, G Steven & Pakes, Ariel, 1996. "The Dynamics of Productivity in the Telecommunications Equipment Industry," Econometrica, Econometric Society, vol. 64(6), pages 1263-1297, November.
    12. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1403-1448.
    13. Mirko Draca & Stephen Machin & John Van Reenen, 2011. "Minimum Wages and Firm Profitability," American Economic Journal: Applied Economics, American Economic Association, vol. 3(1), pages 129-151, January.
    14. Daniel A. Ackerberg & Kevin Caves & Garth Frazer, 2015. "Identification Properties of Recent Production Function Estimators," Econometrica, Econometric Society, vol. 83, pages 2411-2451, November.
    15. James Levinsohn & Amil Petrin, 2003. "Estimating Production Functions Using Inputs to Control for Unobservables," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 70(2), pages 317-341.
    16. Asim Ijaz Khwaja & Atif Mian, 2005. "Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(4), pages 1371-1411.
    17. Chih‐Hai Yang, 2021. "Do exporters have markup premiums and why (not)? Evidence from China," The World Economy, Wiley Blackwell, vol. 44(4), pages 956-979, April.
    18. Alwyn Young, 2000. "The Razor's Edge: Distortions and Incremental Reform in the People's Republic of China," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 115(4), pages 1091-1135.
    19. Miaojie Yu, 2015. "Processing Trade, Tariff Reductions and Firm Productivity: Evidence from Chinese Firms," Economic Journal, Royal Economic Society, vol. 125(585), pages 943-988, June.
    20. Claessens, Stijn & Feijen, Erik & Laeven, Luc, 2008. "Political connections and preferential access to finance: The role of campaign contributions," Journal of Financial Economics, Elsevier, vol. 88(3), pages 554-580, June.
    21. Arthur Lewbel, 1997. "Constructing Instruments for Regressions with Measurement Error when no Additional Data are Available, with an Application to Patents and R&D," Econometrica, Econometric Society, vol. 65(5), pages 1201-1214, September.
    22. repec:hal:spmain:info:hdl:2441/6g0gsihsjmn5snc9pb0jo6hhp is not listed on IDEAS
    23. Fan, Haichao & Gao, Xiang & Li, Yao Amber & Luong, Tuan Anh, 2018. "Trade liberalization and markups: Micro evidence from China," Journal of Comparative Economics, Elsevier, vol. 46(1), pages 103-130.
    24. Torvik, Ragnar, 2002. "Natural resources, rent seeking and welfare," Journal of Development Economics, Elsevier, vol. 67(2), pages 455-470, April.
    25. Holger Görg & Frédéric Warzynski, 2006. "The Dynamics of Price Cost Margins: Evidence from UK Manufacturing," Revue de l'OFCE, Presses de Sciences-Po, vol. 97(5), pages 303-318.
    26. Alwyn Young, 2000. "The Razor's Edge: Distortions and Incremental Reform in the People's Republic of China," NBER Working Papers 7828, National Bureau of Economic Research, Inc.
    27. Thierry Mayer & Marc J. Melitz & Gianmarco I. P. Ottaviano, 2021. "Market Size, Competition, and the Product Mix of Exporters," World Scientific Book Chapters, in: Firms and Workers in a Globalized World Larger Markets, Tougher Competition, chapter 5, pages 109-150, World Scientific Publishing Co. Pte. Ltd..
    28. Philip R. Lane & Aaron Tornell, 1999. "The Voracity Effect," American Economic Review, American Economic Association, vol. 89(1), pages 22-46, March.
    29. Zhengwen Liu & Hong Ma, 2021. "Input Trade Liberalization And Markup Distribution: Evidence From China," Economic Inquiry, Western Economic Association International, vol. 59(1), pages 344-360, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Lai, Aolin & Du, Qian & Wang, Qunwei, 2024. "One region's gain is another's loss: The impact of market segmentation on renewable energy development in China," Energy Policy, Elsevier, vol. 192(C).
    2. Ran Yu & Zhangchi Wang & Yan Li & Zuhui Wen & Weijia Wang, 2023. "Does Population Aging Affect Carbon Emission Intensity by Regulating Labor Allocation?," Sustainability, MDPI, vol. 15(12), pages 1-19, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Stiebale, Joel & Vencappa, Dev, 2018. "Acquisitions, markups, efficiency, and product quality: Evidence from India," Journal of International Economics, Elsevier, vol. 112(C), pages 70-87.
    2. Berkowitz, Daniel & Nishioka, Shuichiro, 2024. "The growth of firms, markets and rents: Evidence from China," Journal of Comparative Economics, Elsevier, vol. 52(2), pages 383-399.
    3. Zhang, Hongyong & Zhu, Lianming, 2017. "Markups and exporting behavior of foreign affiliates," Journal of Comparative Economics, Elsevier, vol. 45(3), pages 445-455.
    4. Du, Pengcheng & Wang, Shuxun, 2020. "The effect of minimum wage on firm markup: Evidence from China," Economic Modelling, Elsevier, vol. 86(C), pages 241-250.
    5. Dai, Xiaoyong & Sun, Zao & Liu, Hang, 2018. "Disentangling the effects of endogenous export and innovation on the performance of Chinese manufacturing firms," China Economic Review, Elsevier, vol. 50(C), pages 42-58.
    6. Jamil, Nida & Chaudhry, Theresa Thompson & Chaudhry, Azam, 2022. "Trading textiles along the new silk route: The impact on Pakistani firms of gaining market access to China," Journal of Development Economics, Elsevier, vol. 158(C).
    7. Xunyong Xiang & Feixiang Chen & Chun†Yu Ho & Wen Yue, 2017. "Heterogeneous effects of trade liberalisation on firm†level markups: Evidence from China," The World Economy, Wiley Blackwell, vol. 40(8), pages 1667-1686, August.
    8. Mauro Caselli & Arpita Chatterjee & Shengyu Li, 2023. "Productivity and Quality of Multi-product Firms," Discussion Papers 2023-10, School of Economics, The University of New South Wales.
    9. Alvaro Garcia Marin & Nico Voigtländer, 2018. "Product-Level Efficiency and Core Competence in Multi-Product Plants," 2018 Meeting Papers 737, Society for Economic Dynamics.
    10. Mukherjee, Subhadip & Chanda, Rupa, 2021. "Tariff liberalization and firm-level markups in Indian manufacturing," Economic Modelling, Elsevier, vol. 103(C).
    11. Bas, Maria & Paunov, Caroline, 2021. "Disentangling trade reform impacts on firm market and production decisions," European Economic Review, Elsevier, vol. 135(C).
    12. Laurens Cherchye & Thomas Demuynck & Bram De Rock & Marijn Verschelde, 2018. "Nonparametric Production Analysis with Unobserved Heterogeneity in Productivity," Working Papers ECARES 2018-25, ULB -- Universite Libre de Bruxelles.
    13. Dobbelaere, Sabien & Kiyota, Kozo, 2018. "Labor market imperfections, markups and productivity in multinationals and exporters," Labour Economics, Elsevier, vol. 53(C), pages 198-212.
    14. Xiaoyong Dai & Liwei Cheng, 2018. "The impact of product innovation on firm-level markup and productivity: evidence from China," Applied Economics, Taylor & Francis Journals, vol. 50(42), pages 4570-4581, September.
    15. Pavel Chakraborty & Rahul Singh & Vidhya Soundararajan, 2021. "Import Competition, Formalization, and the Role of Contract Labor," Working Papers 332157179, Lancaster University Management School, Economics Department.
    16. Pham, Hoang, 2023. "Trade reform, oligopsony, and labor market distortion: Theory and evidence," Journal of International Economics, Elsevier, vol. 144(C).
    17. Lenzu, Simone & Manaresi, Francesco, 2018. "Do Marginal Products Differ from User Costs? Micro-Level Evidence from Italian Firms," Working Papers 276, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    18. KONDO Keisuke, 2018. "Markup and Market Size: Evidence from Japan," Discussion papers 18017, Research Institute of Economy, Trade and Industry (RIETI).
    19. Dario Tortarolo & Roman D. Zarate, 2020. "Imperfect competition in product and labour markets. A quantitative analysis," Discussion Papers 2020-05, Nottingham Interdisciplinary Centre for Economic and Political Research (NICEP).
    20. Bournakis, Ioannis & Papanastassiou, Marina & Papaioannou, Sotiris, 2020. "Multinationals and Domestic TFP: Market Shares, Agglomerations Gains and Foreign Ownership," MPRA Paper 106626, University Library of Munich, Germany.

    More about this item

    Keywords

    Labor price distortion; Export product markups; Mediation effect model; Industrial aggregated markup;
    All these keywords.

    JEL classification:

    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • F19 - International Economics - - Trade - - - Other

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:chieco:v:77:y:2023:i:c:s1043951x22001596. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/chieco .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.