Spatial spillovers of regional wages: Evidence from Chinese provinces

- We test the impact of spatial interaction on local wage using spatial panel models.
- We find that provincial wages diverged in the 1990s but converged in the 2000s.
- Our study confirms the presence of spatial interdependencies in provincial wages.
- The estimation results suggest that spatial spillovers affect local wages positively.
- Human capital and GDP strengthen wage spillovers across provinces.

This study investigates the effects of spatial interactions on local wages based on a panel data from 31 Chinese provinces between 2001 and 2010. Using the Global Moran's I statistic, we provide empirical evidence for the presence of spatial dependencies in provincial wages. Then, we estimate the provincial wage equation using a spatial panel model that controls for spatial heterogeneity and spatial interdependence as well as other regional characteristics. The empirical results show that spatial wage spillover plays an important role in the determination of local wages. Furthermore, we find that human capital and economic growth are two underlying forces strengthening wage spillovers across provinces.