Industry Agglomeration And Regional Productivity Improvement:Mechanism And Evidence From China

Regional productivity incremental effect of industrial agglomeration is not only one of important issues with sustainable concerns in spatial economics research, but also a major focus regarding China's regional economic development and regional economic disparities esspecially in recent years. It has been revealed by most researches made eralier that industrial agglomeration did have positive effects on regional productivity. It is, nonetheless, noteworthy that most research on this issue belong the kind of quantitative analyses with ignoring chanels of the effect of industrial agglomeration on the productivity of industrial agglomeration areas. Most quantitative analyses only focus on the magnitude of regional productivity effect of industrial agglomeration, which treat the causal relationship between two variables as a "black box" processing. Another shortcoming is lacking of analysis from a comprehensive vision. Most relavent empirical tests puts emphasis up on a single factor variable, while the other factors as control variables, but there is a lack of multiple factors inspection, especially the lack of a combing inspection of qualitative mechanism and measure of the quantitative effects.The main purpose of this paper is to recover shortcomings stated above. Specifically, we strated our research from a comprehensive vision, teasing out the main mechanisms about how industrial agglomeration enhancing regional productivity and therefore build up a mechanism system in order to put forward the corresponding empirical propositions. And we test all empirical propositions with China's data.Theoretical qualitative analysis focuses on teasing out relavent mechanisms. Based on refining and classifying existing literatures, we sort out the six major mechanisms of productivity enhancing effects by industrial agglomeration areas, they are physical capital deepening, human capital formation and accumulation, technological progress, improve market efficiency, external economies of scale and dynamic externalities. Then we classified them into three mechanism system according the property of each mechanism respectively. Three mechanism systems are called the system of input factors improvement, the system of production function improvement, and space externality system. Further study revealed that the relationships between the three mechanisms are closely related with each other:the first two systems, collaborative promote the upgrading of regional productivity; the latter space externality system not only exerts its effect alone, but also endows a strengthening effect for the first two systems.Then, this paper puts forward three new empirical propositions by mergering and extracting the above three theoretical systems. The first proposition is focused on overall effects of input factors' improvement system and production function improvement system which is actually covered by effects of four sub-mechanisms, namely, physical capital deepening, human capital formation and accumulation, technological progress and market efficiency improvement. The second proposition is focused on the effect of external economies of scale of industry agglomeration. The third proposition is focused on the long-term effects of various kinds of dynamic externalities.Considering there are diversity and muti-level charecteristics of China's regional economy, the characteristics of each empirical propositions, and the availability of data,the above three empirical propositions are bound to three different spatial dimensions:three space dimensions are provincial economic districts, the eastern coastal economic zones, and metropolitan areas, respectively.The empirical results have provided strong support for the theoretical analysis with several new findings. The first space level inspection reveals that, in general, industrial agglomeration has a significant positive effect on regional productivity, physical capital deepening and improved market efficiency are the two main chanels through which the effect transfer,while the effects of technological progress mechanisms and human capital formation and accumulation mechanism are not significant. Further test with provinces according to the level of economic development shows, the productivity enhancing effect by industrial agglomeration is the strongest in eastern costal areas in China, the effects of four sub-mechanisms are significantly positive, the more underdeveloped in economy, the effects of technological progress and human capital formation and accumulation effect are weaker, thus damping the effect of the industrial agglomeration on regional productivity enhancing. Inspection of the second spatial dimension show that there is an inverted U-shaped relationship between industrial agglomeration scale and the productivity growth of the representive agglomerated industries, and the inflection point emerged around 2004. These results support the theoretical analysis of relationship between industrial agglomeration, external economies of scale and regional productivity. We further divided the eastern coastal areas into the Bohai Rim, Yangtze River Delta, and Pearl River economic zones, and the regional sub-sample data inspection results show that in these three Economic zones, the productivity effects of agglomeration external economies of scale are different, we believe that different levels of division of the collaboration development within the major economic inter-provincial industry in each Economic zone is the main cause of the above difference. The third spatial dimension test proves the manufacturing sector's productivity of three metropolitan area (Beijing Shanghai and Tianjin) are well conintegrated with three dynamic externalities, But responsed differently to three dynamic externalitis:Beijing's manufacturing sector benefit most from MAR externalities, Shanghai's manufacturing sector benefit most from Porter externalities, Tianjin manufacturing sector benefit from three types of externalities simultaneously, but the effects of Porter externality is the strongest. Overall, in the three metropolitan areas, the manufacturing industry is mainly subject to specialization rather than diversity.The useful policy implications can be derived from the theoretical and empirical studies of this paper. The most important revelation of all is twofold:On one hand, it is necessary for the government to improve local investment environment, in order to attract appropriate industry to agglomerate, On the other hand, it's also important for goverment to reinforce positive externalities of agglomerated industries in the region, in order to improve regional industrial productivity and industrial upgrading.