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Testing Urbanization Economies in Manufacturing Industries: Urban Diversity or Urban Size?

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  • Shihe Fu
  • Junjie Hong
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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.

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Paper provided by Economics and Econometrics Research Institute (EERI), Brussels in its series EERI Research Paper Series with number EERI_RP_2010_38.

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Date of creation: 18 Oct 2010
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Handle: RePEc:eei:rpaper:eeri_rp_2010_38

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Keywords: Urbanization economies; Industrial diversity; Jacobs externalities; City size.;

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