Influences of production and R&D agglomeration on productivity: Evidence from Chinese electronics firms

- We examine the influences of spatial and R&D agglomerations on firm productivity.
- The dataset used in a panel data of Chinese electronics firms
- The calculated EG indexes of production and R&D are highly spatially concentrated.
- Production agglomeration has a positive relationship with productivity.
- R&D and R&D agglomeration are positively and negatively related to productivity.

As China adopts a government-supported agglomeration model to develop high-tech industries, it is crucial to examine whether the spatial concentration of manufacturing and R&D activities enhance firm-level productivity. Based on a panel dataset of Chinese electronics firms from 2005 to 2007, the calculated Ellison-Glaeser (EG) index indicates that both production and R&D activities are highly spatially concentrated. Crucially, we find that production agglomeration has a positive relationship with firms' productivity, especially for smaller firms. In contrast, R&D agglomeration seems to negatively relate with productivity. It implies that the possible congestion effect and/or free rider problems erode the benefit derived from knowledge spillovers.