Agglomeration economies in China: Evidence on levels, locations, causes, and effects
Spatial concentration of economic activities is an inherent feature of market economies, yielding potentially beneficial agglomeration effects. After three decades of market reforms in China, firms and workers are no longer trapped by either the planned economy or hukou systems, allowing greater spatial concentration. But despite potential agglomeration benefits, central government investment in lagging regions and competition among local governments to attract mobile firms may cause spatial dispersion of economic activities. In this paper, we quantify the overall level of spatial concentration of economic activities in China and identify the exact destinations of spatial concentration. We also estimate the net effect of spatial concentration and explore its causes. Such research is needed because there are doubts about both the necessity and feasibility of countervailing responses against agglomeration by governments. Moreover, studies to date focus on manufacturing, ignoring potentially greater spatial concentration in services and also ignoring the role of local consumption market size and amenities.
Data/Methods:
We merge jurisdictional (urban) districts under the same prefecture into one unit and do the same for (rural) counties, giving a total of 576 observations in 288 prefectures. We then use sectoral employment data to calculate locational Gini indices for each of 19 sectors and for each year between 1998 and 2010. Next we regress local employment shares for each sector on locational characteristics and temporal effects, using a panel of our 576 areal units over 2005-2010. Similar regressions of GDP per capita, wages and the Gini indices on locational characteristics and temporal effects are carried out for the 2005-10 period.
Expected Results:
While most literature concentrates on agglomeration in the manufacturing sector our results show that manufacturing is actually the sixth most spatially dispersed sector in China. Instead, services are most concentrated, especially leasing (renting), telecommunication (information, software), construction, and transportation (storage, post), which are 1.26-1.73 times more concentrated than manufacturing. Moreover, telecommunications, construction, transport, retail, and finance (banking, insurance) have recently clustered much faster than has manufacturing. Thus the focus on spatial concentration of manufacturing in the literature misses many key trends since it is these other sectors that are the main destinations for incoming inter-regional migrant workers. The locational characteristics of the main agglomeration destinations are those of the existing mega-cities, rather than those of the cities that reflect government-directed efforts to channel economic activity to particular locations.