Trends and Determinants of China’s Industrial Agglomeration

This paper investigates trends and determinants of the spatial concentration of China’s manufacturing industries using a large firm-level data for the time period of 1998 to 2005. It is found that the overall industrial agglomeration in China has increased steadily in recent years though it is still much lower than those of the well-developed market economies (such as United States, United Kingdom, and France). It is also found that local protectionism among China’s various regions obstructs China’s industrial agglomeration while Marshallian externalities facilitate the process of spatial concentration of manufacturing industries. On an optimistic note, there is evidence that the negative impacts of local protectionism have become less significant over time but those of Marshallian externalities are gaining in importance, which is consistent with the overall trend of China’s industrial agglomeration.