Optimal Agglomeration Scale Of Urban Industry And Labor Productivity

City's essence is space concentration. Industrial agglomeration is a major feature of the urban economy. It is a phenomenon that the same type or different types of related industries concentrated on a certain geographical area, in order to achieve agglomeration effect. Since Marshall (1920) proposed externality, the experts have build a variety of industrial agglomeration models from different perspectives, which consummates the theory. From the1970s on, empirical researches have indicated that the theory of industrial agglomeration can be used to explain the geographical concentration of industries, the formation of cities, as well as the improvement of labor productivity.Since China has built socialist market economy after1990s, the power of the market accelerates urbanization. Meanwhile, economic disequilibrium development leads to huge gap and different labor productivity among regions and cities. Dose this different scale of industrial agglomeration cause the differences above? Is the scale of industrial agglomeration bigger, the better?Considering these, this article reviews the theories about industrial agglomeration and agglomeration economy. Moreover, we summarize the measure method on the relationship between industrial agglomeration and productivity. This article also reviews the domestic and foreign empirical results, analyze the mechanism of agglomeration economy in theory, and propose the possibility of optimal scale of industrial on the basis of the balanced theory. Besides, based on the model of agglomeration economy that proposed by Ciccone and Hall (1996), I accomplish the empirical analysis the relationship between industrial agglomeration and productivity with the panel data of11prefecture-level cities in Zhejiang Province from2004to2009, also discuss the impacts on labor productivity from nonlinear factors. The result shows that,(1) The elastic of non-agricultural productivity to the density of employment is as high as0.4876in Zhejiang Province. That is to say, when density of employment doubles, non-agricultural productivity will increase48.76%. That demonstrates that agglomeration economies of cities exist in Zhejiang Province.(2) Urbanization economies and localization economies have positive impact on labor productivity, which indicates that whether in the industry or among the industries, externalities can produce increasing returns to scale, so as to reduce the production costs of enterprises and improve labor productivity. That demonstrates that two kinds of forms of agglomeration economy exist in Zhejiang Province.(3) According to the empirical result, there is a nonlinear relationship between industrial agglomeration and labor productivity whether in the whole, or in the second, third industry respectively. That is to say, optimal agglomeration scale of industry does exist. At the same time, we calculate the optimal scales of the whole industry, the second industry and the third industry are346.0359person/km2,185.9632person/km2and401.7513person/km2. Finally, I discuss the proposed political suggestions according to the actuality of Zhejiang Province, including to promote industrial agglomeration and to control suitable agglomeration scale, to select the appropriate type of agglomeration economy according to actual situation, and to strengthen infrastructure supply in order to alleviate agglomeration negative effect.