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Agglomeration economies and inequality: theory and evidence from provincial China

Author

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  • Jamal Khan
  • Jiacheng Zheng
  • Maaz Ahmad
  • Zubair Alam Khan

Abstract

This study develops a theoretical model to examine the impact of agglomeration (dis)economies on inequality, while explicitly accounting for spatial interactions between regions. The theoretical model is then empirically tested using Chinese provincial data and the Spatial Durbin Model (SDM), which accounts for both direct and indirect spatial spillovers effects. Our findings reveal that agglomeration exhibits a non-linear effect on inequality in China, which varies by sector. Manufacturing and urban agglomeration have an inverted U-shaped impact on inequality, whereas tertiary agglomeration has a U-shaped effect. Apart from their direct localized spillover effects on neighboring provinces, we discover that manufacturing and tertiary agglomeration have significant indirect spillover effects (beyond immediate neighbors) on inequality outcomes on larger regional scale through multi-region diffusion.

Suggested Citation

  • Jamal Khan & Jiacheng Zheng & Maaz Ahmad & Zubair Alam Khan, 2026. "Agglomeration economies and inequality: theory and evidence from provincial China," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 24(2), pages 317-340, April.
    • Handle: RePEc:taf:jocebs:v:24:y:2026:i:2:p:317-340
    DOI: 10.1080/14765284.2025.2538328
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