This article aims to quantify the relationship between the falling low labour income share and financial repression in China and address the question of does the share simulates the financial repression or vice versa? The findings show that the falling labour income share is Granger-caused by the financial repression and yet the financial repression likely aids labour-augmenting technological improvement to some extent. In particular, the persistent falling labour income share in China are due to, firstly, the falling share is attributed to the restraints of low interest rate by financial repression policy; secondly, the speed of adjustment (i.e. -0.347, -0.150 and -0.214) by technological progress (or the efficiency of the renovation) has been lagging behind. This lagging likely leads to the share that enables to restore to the balanced income share between capital and labour.
|Journal||China Economic Review|
|Publication status||Submitted - Mar 2017|