Agglomeration, Public Expenditure and Productivity Spillover in Space: Firm-Level Evidence from China’s Electric Apparatus Industry

The article consists of two parts. Part I examines the Chinese Annual Survey of Industrial Firms database (CASIF). We start with a brief description of the coverage and key variables, followed by a review of recent applications of the data set in empirical studies. We then discuss the quality and the limitations of the dataset and propose a data cleaning procedure that identifies the key information of each firm. In Part II, linking a sub-sample of this micro-level data set with two other databases-Chinese Prefecture City and County Fiscal Statistical Material and county geographic information, we explore the productivity propagation process in space in China’s electric apparatus industry during 1999-2007. The impacts of firm-specific characteristics on productivity growth, the external market conditions and the institutional factor are all considered. Within the general nested spatial framework, we propose modifications to the Kelejian and Prucha’s (1998) FE-2SLS procedure and the Mutl and Pfaffermayr’s (2011) RE-FG2SLS procedure to cope with the unbalanced panel and find the statistical evidence strongly favors the fixed effects over the random effects model. The main results indicate (1) there are significantly positive within-region as well as between-region productivity spillovers; (2) market competition and public expenditure in the local and neighboring districts/counties are important sources to boost productivity growth; and (3) the externality in productivity growth attenuates in spatial distance. Notably, the betweenregional spillover effects are found to be more significant in smaller than in larger administrative units and more pronounced in urban districts than in counties. ∗Ming He: [email protected], +86-0512-8816-1712; Yang Chen: [email protected], +86-0512-8816-1178; Ron Schramm: [email protected], +86-0512-8816-7129.