Market access and the heterogeneous effect of shocks on wages: Evidence from Chinese cities.

New Economic Geography (NEG) models predict that locations with market access advantages have higher wages and larger labour inflows. Using comprehensive prefecture-city level data for China, the study estimates a wage equation derived from a NEG model. The results support the NEG explanation for wage disparities across cities. An application of shock experiments on 230 prefecture-cities in China shows that the average effect of income changes differs greatly across locations. In particular, income shocks generated in core cities have a higher average impact in the rest of the country than shocks generated elsewhere. [ABSTRACT FROM AUTHOR]