Trends and determinants of China's industrial agglomeration

This paper investigates trends and determinants of the geographic concentration of China's manufacturing industries using large firm-level data for the period of 1998 to 2005. It is found that the extent of industrial agglomeration in China, measured by the Ellison–Glaeser index, has increased steadily throughout the sample period, though it is still much lower than those of selected developed countries such as France, United Kingdom, and the United States. It is also found that local protectionism among China's various regions obstructs the process of geographic concentration of manufacturing industries, and this result is robust to the use of instrumental variable estimation for dealing with possible reverse causality and omitted variable problems and to the control for traditional determinants of industrial agglomeration such as Marshallian externalities, resource endowments and scale economies.