Impact of Development Zone Construction on Labor Share in China

Ziyu Liu and Yanlin Yang
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Ziyu Liu: Economics and Management School, Wuhan University, Wuhan 430072, China
Yanlin Yang: Center for Economic Development Research and Center of Population, Resource & Environmental Economics Research, Wuhan University, Wuhan 430072, China

Sustainability, 2020, vol. 12, issue 9, 1-22

Abstract: The decline in the share of labor income is associated with rising income inequality, which raises a series of economic and social problems. These problems seriously threaten the sustainability of economic development. To maintain sustainable economic development, China’s government has invested hundreds of billions of dollars to build economic development zones by attracting high-tech enterprises into the zones. In our paper, we aim to analyze whether the construction of economic development zones can effectively increase the share of labor income. We use PSM-DID (Propensity Score Matching Difference-in-Difference) to evaluate the impact of establishing economic development zones in China on the labor income share of enterprises in economic development zones in 2006. We found that the establishment and construction of economic development zones increased the share of labor income through the “agglomeration effect” and “policy effect”. Estimation of the level of heterogeneity among economic development zones shows that, compared with provincial economic development zones, the construction of national economic development zones has a greater effect on increasing the labor income share of enterprises in those zones. Economic development zones in the eastern, central, and western regions should also increase their share of labor income areas.

Keywords: development zone; labor income share; Propensity Score Matching (PSM); Difference-in-Difference (DID) (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
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