Industrial agglomeration and firm size: Evidence from China

This paper, by using annual surveys of manufacturing firms from 1998 to 2005 in China, first documents a positive correlation between industrial agglomeration and firm size, which is previously found in developed economies. Next, by using the instrumental variable estimations, we identify that industrial agglomeration has a positive and statistically significant causal impact on firm size. Finally, we find that firms are more likely to become larger by locating with a number of larger firms than with a larger number of firms.

► This paper investigates the impact of industrial agglomeration on firm size. ► A positive impact of industrial agglomeration is found in the setting of China. ► Firms are found to benefit from the size rather than the number of neighboring firms.