Agglomeration and productivity: Firm-level evidence from China's textile industry

Hui Lin Lin, Hsiao Yun Li, Chih Hai Yang

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56 Scopus citations

Abstract

Is the spatial concentration of manufacturing activity able to enhance firm-level productivity? This question is particularly relevant to production in China, which has a huge territory and population, but a skewed distribution in terms of urban-rural development. This paper aims to examine the dynamics of industrial agglomeration and the impact of agglomeration on firm-level productivity in China's textile industry by using a firm-level panel dataset from 2000 to 2005. First, the average value of the Ellison-Glaeser (EG) index (city level) is found to be approximately 0.00019. Moreover, the calculated city EG index of spatial concentration for each year exhibits a decreasing trend of spatial agglomeration for garments and other fiber products, but an increasing trend for the textile industries' agglomeration in China. The above findings are similar to the findings of Lu and Tao (2009). Secondly and importantly, this study finds an inverted U-shape relationship between agglomeration and productivity. It suggests that while industrial agglomeration enhances firms' productivity, agglomeration diseconomies may appear if the degree of agglomeration is too high.

Original languageEnglish
Pages (from-to)313-329
Number of pages17
JournalChina Economic Review
Volume22
Issue number3
DOIs
StatePublished - Sep 2011

Keywords

  • Agglomeration
  • China
  • Productivity
  • Textile industry

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