Agglomeration and firm-level productivity: a Bayesian spatial approach

Yoshihiro Hashiguchi and Kiyoyasu Tanaka

No 403, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: This paper estimates the impact of industrial agglomeration on firm-level productivity in Chinese manufacturing sectors. To account for spatial autocorrelation across regions, we formulate a hierarchical spatial model at the firm level and develop a Bayesian estimation algorithm. A Bayesian instrumental-variables approach is used to address endogeneity bias of agglomeration. Robust to these potential biases, we find that agglomeration of the same industry (i.e. localization) has a productivity-boosting effect, but agglomeration of urban population (i.e. urbanization) has no such effects. Additionally, the localization effects increase with educational levels of employees and the share of intermediate inputs in gross output. These results may suggest that agglomeration externalities occur through knowledge spillovers and input sharing among firms producing similar manufactures.

Keywords: China; Industrial policy; Manufacturing industries; Productivity; Local economy; Agglomeration economies; Spatial autocorrelation; Bayes; Chinese firm-level data; GIS (search for similar items in EconPapers)
JEL-codes: C21 C51 R10 R15 (search for similar items in EconPapers)
Date: 2013-03-01
New Economics Papers: this item is included in nep-cwa, nep-ecm, nep-eff, nep-geo, nep-tra and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Published in IDE Discussion Paper = IDE Discussion Paper, No. 403. 2013-03-01

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Related works:
Journal Article: Agglomeration and firm-level productivity: A Bayesian spatial approach (2015)
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