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TESTING URBANIZATION ECONOMIES IN MANUFACTURING INDUSTRIES: URBAN DIVERSITY OR URBAN SIZE?

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Abstract:

ABSTRACT Whether urbanization economies stem from urban diversity or urban scale is not clear in the literature. This paper uses the 2004 China manufacturing census data and tests simultaneously the effects of urban size and industrial diversity on firm productivity, controlling for localization economies and human capital externalities. We find that productivity increases with city size—but at a diminishing rate, and the city size effect becomes negative for cities with population over two million. Firms also benefit from industrial diversity, and the strength of such benefit increases with city size but decreases with firm size. The characteristics of agglomeration economies in a transition economy are also discussed.

Document Type: Research Article

DOI: http://dx.doi.org/10.1111/j.1467-9787.2010.00702.x

Affiliations: 1: Research Institute of Economics and Management, Southwestern University of Finance and Economics, 55 Guanghua Cun Street, Chengdu, 610074, China; and Cheung Kong Graduate School of Business, Beijing, 100738, China. 2: School of International Trade and Economics, University of International Business and Economics, 10 East Huixin Street, Chaoyang District, Beijing, 100029, China.

Publication date: August 1, 2011

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