ABSTRACT
In this chapter, we have tried to identify possible agglomeration economies in Chinese urban areas. Over 120,000 firm-level production data cross 28 industries from the Third National Industrial Survey, along with the urban population data of 200 cities were used. The results revealed strong and significant agglomeration economies in Chinese urban areas. The estimated average agglomeration elasticity is around 0.051, implying a 3.6 per cent gain in firm productivity for every doubling of the city size. The breakdown analysis suggests that the major source of the agglomeration advantage comes from localization effect – benefits from concentration of firms of the same industry within one geographical area, rather than urbanization effect – externalities from urban development itself. The Maximum size study also suggests that, while most of the Chinese cities have yet to grow to demonstrate the full strength of agglomeration economies, many Chinese industries have reached the ‘optimal’ industry size within a ‘given’ urban area.
