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Human capital externalities in cities: evidence from Chinese manufacturing firms

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  • Zhiqiang Liu

Abstract

We investigate whether increased geographic concentration of human capital generates positive externalities that benefit firms located in the area. Using a panel of Chinese manufacturing firms, we find a positive and statistically significant relationship between firm productivity and city-level human capital. This result is robust to alternative model specifications and estimation methods used and distinguishable from the effect of industry agglomeration and the spillover effect associated with foreign direct investment. We argue that human capital spillovers do not occur automatically and freely. The intensity of spillovers depends on the benefits and costs accrued to individual workers, which in turn depend on the growth, technological and institutional environments in which the firm operates. We find that the intensity of spillovers is greater in industries where human capital matters more, in larger or more densely populated cities and in more economically vibrant coastal cities. We also find that the intensity of spillovers is generally greater for non-state-owned firms than for state-owned ones and displays an upward trend, which is suggestive of an intensifying impact of market-oriented reforms on human capital externalities.

Suggested Citation

  • Zhiqiang Liu, 2014. "Human capital externalities in cities: evidence from Chinese manufacturing firms," Journal of Economic Geography, Oxford University Press, vol. 14(3), pages 621-649.
  • Handle: RePEc:oup:jecgeo:v:14:y:2014:i:3:p:621-649.
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    File URL: http://hdl.handle.net/10.1093/jeg/lbt024
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    Cited by:

    1. Combes, Pierre-Philippe & Démurger, Sylvie & Li, Shi & Wang, Jianguo, 2020. "Unequal migration and urbanisation gains in China," Journal of Development Economics, Elsevier, vol. 142(C).
    2. Xiaomeng Zhao & Lin Liu, 2022. "The Impact of Urbanization Level on Urban–Rural Income Gap in China Based on Spatial Econometric Model," Sustainability, MDPI, vol. 14(21), pages 1-23, October.
    3. Xing, Chunbing & Zhang, Junfu, 2017. "The preference for larger cities in China: Evidence from rural-urban migrants," China Economic Review, Elsevier, vol. 43(C), pages 72-90.
    4. Zhenshan Yang, 2023. "Human capital space: a spatial perspective of the dynamics of people and economic relationships," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-14, December.
    5. Stephen Sheppard & Dan Zhao, 2016. "Regional Concentration of Industry in China: Decentralised Choices or a Central Plan?," Department of Economics Working Papers 2016-17, Department of Economics, Williams College.
    6. Andrés Rodríguez‐Pose & Min Zhang, 2019. "Government institutions and the dynamics of urban growth in China," Journal of Regional Science, Wiley Blackwell, vol. 59(4), pages 633-668, September.
    7. Cui, Ying & Martins, Pedro S., 2021. "What drives social returns to education? A meta-analysis," World Development, Elsevier, vol. 148(C).
    8. Anping Chen & Tianshi Dai & Mark D. Partridge, 2021. "Agglomeration and firm wage inequality: Evidence from China," Journal of Regional Science, Wiley Blackwell, vol. 61(2), pages 352-386, March.
    9. Zhipeng Gao & Zhenyu Wang & Mi Zhou, 2023. "Is China’s Urbanization Inclusive?—Comparative Research Based on Machine Learning Algorithms," Sustainability, MDPI, vol. 15(4), pages 1-16, February.
    10. Su, Yaqin & Liu, Zhiqiang, 2016. "The impact of foreign direct investment and human capital on economic growth: Evidence from Chinese cities," China Economic Review, Elsevier, vol. 37(C), pages 97-109.
    11. Baixue Yu & Geng Niu & Jingjing Ye & Wen‐wen Zhang, 2023. "Human capital agglomeration, institutional barriers, and internal migration in China," Growth and Change, Wiley Blackwell, vol. 54(1), pages 284-303, March.
    12. Qing Liu & Jian Wang, 2022. "Spatial agglomeration and firm productivity: Does trade status matter?," Regional Science Policy & Practice, Wiley Blackwell, vol. 14(S2), pages 5-18, November.
    13. Möller, Joachim & Eppelsheimer, Johann, 2016. "The Wage Effects of Regional Brain Gain and Brain Drain Revisited," VfS Annual Conference 2016 (Augsburg): Demographic Change 145506, Verein für Socialpolitik / German Economic Association.

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