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The pathways from industrial agglomeration to TFP growth – the experience of Chinese cities for 2001–2010

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  • Shanzi Ke
  • Yufeng Yu

Abstract

This paper employs a stochastic frontier production function to decompose total factor productivity (TFP) and examines the determinants of frontier technological progress, technical efficiency, and TFP growth across 262 prefectural and higher level cities in China for 2001–2010. The econometric analysis shows that industrial agglomeration, as a share of the national output, contributes to TFP growth through frontier technology and technical efficiency; industrial agglomeration, as a share of the local economy, enhances technical efficiency but is not conducive to technological progress. Spatial density of urban employment negatively affects the growth of technical efficiency and TFP. Overall, the differences in agglomeration economies explain more than one-half of the differences in TFP growth across China's cities. The results are stable in three sub-periods. Important policy implications are derived from the empirical findings. Smaller cities should develop an industrial base that passes a critical mass. Larger cities should continue to direct new development and relocate existing firms to planned, less congested industrial districts. Provincial and sub-provincial level cities should specialize and diversify in advanced producer services and headquarters economies, rather than manufacturing.

Suggested Citation

  • Shanzi Ke & Yufeng Yu, 2014. "The pathways from industrial agglomeration to TFP growth – the experience of Chinese cities for 2001–2010," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 19(2), pages 310-332, April.
  • Handle: RePEc:taf:rjapxx:v:19:y:2014:i:2:p:310-332
    DOI: 10.1080/13547860.2014.880286
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    1. Fried, Harold O. & Lovell, C. A. Knox & Schmidt, Shelton S. (ed.), 1993. "The Measurement of Productive Efficiency: Techniques and Applications," OUP Catalogue, Oxford University Press, number 9780195072181.
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