Firms' Agglomeration And Interregional Specialization

Following the general equilibrium model with monopolistic competition, which was developed by Dixit and Stiglitz (1977), Krugman (1991a) elucidated the geographical agglomeration of industries subject to scale of economics and transportation cost. In accordance with Krugman (1980), Krugman & Venables (1995) and Venables (1996), the thesis tries to further the understanding of the dynamic mechanism of firms' agglomeration. The main issue studied here is that why different industries agglomerated in different regions respectively, i.e. the formation of specialized industrial districts (SIDs hereinafter) or interregional specialization.To begin with, the thesis concentrates on the origination of SIDs. As we know, geography is not an even plane, which means historical factors matter. Local industry traditions tend to cause geographically non-uniform distribution of industry-specific factors. However, the lower mobility of these factors helps to strengthen the trend of non-uniform distribution. As a result, the agglomeration of industry-specific factors increases the competitive advantage of specific industry, so as to cause the origination of SIDs.The secondly, from the view of interaction between division of labor and extension of transaction, the thesis discusses the mechanism that how SIDs come into being. Following the theoretical model developed by Krugman (1980), Krugman & Venables (1995) and Venables (1996), this thesis presents a model to explain the forming of SIDs. The basic idea here is that increasing returns are engine-driver of SIDs, while lower switching costs of human capital and higher transaction costs both speed the forming of SIDs.The thirdly, the thesis takes China's dual economy as backdrop and discusses the determinants of the expansion of SIDs. The surplus farm labors in the west China provide necessary cheap productive factors for SIDs in the east China. The difference in income, subject to the east's technology superiority over the west, drives the western surplus farmers to the east. If the difference in income can compensate for the moving cost, larger populations of surplus farm labors will move from the west to the east. Thus cause the expansion of SIDs.The last but not the least, according to the evidence of hardware SID in Yongkang (a county in Zhejiang Province, China), the thesis testifies the above theoretical conclusions, and suggests some policy implications.