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Productivity and Agglomeration Economies in Chinese Cities

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Abstract

I test the existence of agglomeration economies in Chinese cities by evaluating the impact of population size and density on urban productivity. Based on panel data of about 150 Chinese cities during the 1990s, I find an inverted U-shaped relationship between city size and productivity as well as a positive effect of population density on urban productivity. The estimated city size corresponding to the peak point of labour productivity ranges between 3 and 4 million, which implies that most cities in our sample are not large enough to fully exploit productivity advantages associated with agglomeration economies.

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Notes

  1. According to NSB (1999), cities are classified as: (1) small cities if the population is under 200,000 inhabitants, (2) medium-sized cities if the population is between 200,000 and 500,000 inhabitants, (3) large cities if the population is between 500,000 and 1,000,000 inhabitants, (4) super-large cities if the population exceeds 1,000,000 inhabitants.

  2. See Eberts and McMillen (1999) and Rosenthal and Strange (2004) for a comprehensive review.

  3. The omission of other inputs may lead to a bias in coefficient estimates. Owing to lack of data, this remains a frequent difficulty in the literature (see Eberts and McMillen (1999), Rosenthal and Strange (2004) for discussions). In our estimation, besides capital (physical and human) and labour, inputs like land and urban infrastructures are taken into account with the introduction of density and telephone number.

  4. K t =K t −1(1−δ)+I t , K t −1 and K t are capital stocks of periods t−1 and t; δ is the depreciation rate of capital, supposed to be 5%; I t is the real value of fixed asset investment in the period t, based on constant price of 1990 (current price value divided by deflators of fixed asset investment at province level). Capital stock of the first year is estimated following the method of Wu (1999), where K(1)=∫−∞ 1 I(t)dt=I(0)e θ/ θ, and I(0) are estimated by a linear regression using investment series from 1990 to 1997.

  5. FDI are converted to RMB value using exchange rates of each year, and then deflated by the same deflators as for GDP.

  6. The confidence intervals at the significant level of 95% are, respectively, 3,223,693, 4,181,239; 3,311,495, 4,375,523; 3,141,325, 4,504,937; 2,669,906, 4,227,126.

  7. In the short run, there is a trade-off between construction costs and land saving, as high-rise construction techniques are more expensive; however, in the long run, because of scale economies and technical progress, the unit cost of high-rise construction will decrease, whereas land price tends to be higher.

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Authors and Affiliations

  1. CEMA, Central University of Finance and Economics, No. 39 College South Road, Beijing, 100081, P.R. China

    Zelai Xu

  2. China-Africa Development Fund, No. 28 Fuxingmennei Street, Beijing, 100031, P.R. China

    Zelai Xu

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APPENDIX

APPENDIX

See Table A1.

Table a1 List of the 155 cities in the sample
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Xu, Z. Productivity and Agglomeration Economies in Chinese Cities. Comp Econ Stud 51, 284–301 (2009). https://doi.org/10.1057/ces.2008.43

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