Relative Prices and Wages in China: Evidence from a Panel of Provincial Data

Jun Nagayasu and Ying Liu
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Ying Liu: ShanDong University, Postal: School of Economics, ShanDong University, 27 Shanda Nanlu, Jinan, P.R. China 250100

Journal of Economic Integration, 2008, vol. 23, 183-203

Abstract:

Using Chinese provincial data, we examine the relationship between relative prices and wages, which can be derived on the basis of the Balassa-Samuelson theorem. First, considering cross sectional dependency in our data, we implement recently developed panel unit root tests. We report strong evidence of non-divergence in the prices of provinces vis-a-vis those of the benchmark (Beijing) and weaker evidence in wages. In the latter case, the results seem sector-specific, suggesting that wages in some industries are not following the trend in Beijing. Secondly, using sectorlevel data, we find evidence that relative prices can be explained by relative wages.

Keywords: Purchasing power parity; the Balassa-Samuelson effect; panel unit root tests; convergence speed; Chinese provincial data; bootstrap methods (search for similar items in EconPapers)
JEL-codes: E30 F30 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0431

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