Abstract
In this paper, we study the impact of two industry characteristics—relocation cost and market competition—on the location choice of firms with productivity heterogeneity between large market and small market. We find that only in industries with high relocation costs or fierce market competition, large markets are more attractive to high-productivity firms. We use Chinese firm data to test the predictions of the theoretical model, and the empirical results are consistent with the conclusions of the theoretical model.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Accetturo, A., Giacinto, V. D., Micucci, G., & Pagnini, M. (2018). Geography, productivity, and trade: Does selection explain why some locations are more productive than others? Journal of Regional Science, 58(5), 949–979.
Ahlfeldt, G. M., & Feddersen, A. (2018). From periphery to core: Measuring agglomeration effects using high-speed rail. Journal of Economic Geography, 18(2), 35.
Alvarez, R., & López, R. A. (2005). Exporting and performance: Evidence from Chilean plants. Canadian Journal of Economics, 38(4), 1384–1400.
Arimoto, Y., Nakajima, K., & Okazaki, T. (2014). Sources of productivity improvement in industrial clusters: The case of the prewar Japanese silk-reeling industry. Regional Science and Urban Economics, 46(c), 27–41.
Arnold, J., & Hussinger, K. (2005). Export behavior and firm productivity in German manufacturing: A firm-level analysis. Review of World Economics, 141(2), 219–243.
Aw, B. Y., Chung, S., & Roberts, M. (2000). Productivity and turnover in the export market: Micro-level evidence from the Republic of Korea and Taiwan (China). World Bank Economic Review, 14(1), 65–90.
Baldwin, R. E., & Okubo, T. (2006). Heterogeneous firms, agglomeration and economic geography: Spatial selection and sorting. Journal of Economic Geography, 6(3), 323–346.
Behrens, K., Duranton, G., & Robert-Nicoud, F. (2014). Productive cities: Sorting, selection, and agglomeration. Journal of Political Economy, 122(3), 507–553.
Bernard, A. B., & Jensen, J. B. (1999). Exceptional exporter performance: Cause, effect, or both? Journal of International Economics, 47(1), 1–25.
Brandt, L., Van Biesebroeck, J., Wang, L., & Zhang, Y. (2017). WTO accession and performance of Chinese manufacturing firms. American Economic Review, 107(9), 2784–2820.
Chen, Q., Guan, X., & Huan, T. C. (2021). The spatial agglomeration productivity premium of hotel and catering enterprises. Cities, 112(1), 103113.
Combes, P.-P., Duranton, G., Gobillon, L., Puga, D., & Roux, S. (2012). The productivity advantages of large cities: Distinguishing agglomeration from firm selection. Econometrica, 80(6), 2543–2594.
De Loecker, J., & Warzynski, F. (2012). Markups and firm-level export status. American economic review, 102(6), 2437–71.
Ding, C., & Niu, Y. (2019). Market size, competition, and firm productivity for manufacturing in China. Regional Science and Urban Economics, 74, 81–98.
Dixit, A. K., & Stiglitz, J. E. (1977). Monopolistic competition and optimum product diversity. American Economic Review, 67(3), 297–308.
Eaton, J., Kortum, S., & Kramarz, F. (2004). Dissecting trade: Firms, industries, and export destinations. American Economic Review, 94(2), 150–154.
Fukao, K., Kim, Y., & Kwon, H. (2011). Do more productive firms locate new factories in more productive locations? An empirical analysis based on panel data from Japan's census of manufactures. RIETI discussion paper series
Harris, C. (1954). The market as a factor in the localization of industry in the United States. Annals of the Association of American Geographers, 44(4), 315–348.
Hasan, S., Aggian, A. F., Klaiber, H. A., & Sheldon, I. (2018). Agglomeration economies or selection? An analysis of Taiwanese science parks. International Regional Science Review, 41(3), 335–363.
Helpman, E., Melitz, M. J., & Yeaple, S. R. (2004). Export versus FDI with heterogenous firms. American Economic Review, 94(1), 300–316.
Hsieh, C.-T., & Klenow, P. J. (2009). Misallocation and manufacturing TFP in China and India. Quarterly Journal of Economics, 124(4), 1403–1448.
Kimura, F., & Kiyota, K. (2006). Exports, FDI, and productivity: Dynamic evidence from Japanese firms. Review of World Economics, 142(4), 695–719.
Kondo, K., & Okubo, T. (2019). The impact of local agglomeration on firm entry and exit. RIETI discussion paper series
Krugman, P. (1991). Geography and trade. The MIT Press.
Levinsohn, J., & Petrin, A. (2003). Estimating production functions using inputs to control for unobservables. Review of Economic Studies, 70(2), 317–341.
Li, F. (2020). Agglomeration and innovation: Selection or true effect? Environment and Planning, 52(2), 423–448.
Marshall, A. (1890). Principles of economics (8th ed.). Palgrave MacMillan.
Martin, R., & Sunley, P. (1996). Paul Krugman’s geographical economics and its implications for regional development theory: A critical assessment. Economic Geography, 72(3), 259–292.
Melitz, M. J. (2003). The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica, 71(6), 1695–1725.
Melitz, M. J., & Ottaviano, G. (2008). Market size, trade and productivity. Review of Economic Studies, 75(1), 295–316.
Melo, P. C., Graham, D. J., & Noland, R. B. (2009). A meta-analysis of estimates of urban agglomeration economies. Regional Science and Urban Economics, 39(3), 332–342.
Okubo, T., Picard, P. M., & Thisse, J.-F. (2010). The spatial selection of heterogeneous firms. Journal of International Economics, 82(2), 230–237.
Olley, G. S., & Pakes, A. (1996). The dynamics of productivity in the telecommunications equipment industry. Econometrica, 64(6), 1263–1297.
Ottaviano, G., Tabuchi, T., & Thisse, J.-F. (2002). Agglomeration and trade revisited. International Economic Review, 43(2), 409–436.
Redding, S., & Venables, A. J. (2004). Economic geography and international inequality. Journal of International Economics, 62(1), 53–82.
Rosenthal, S. S., & Strange, W. C. (2004). Evidence on the nature and sources of agglomeration economies. In V. Henderson, & J.-F. Thisse (Eds.), Handbook of regional and urban economics, Vol. 4, 2119–2171.
Saito, H., & Gopinath, M. (2009). Plants’ self-selection, agglomeration economies and regional productivity in Chile. Journal of Economic Geography, 9(4), 539–558.
Song, Z., Storesletten, K., & Zilibotti, F. (2011). Growing like China. American Economic Review, 101(1), 196–233.
Syverson, C. (2004). Market structure and productivity: A concrete example. Journal of Political Economy, 112(6), 1181–1222.
Venables, A. J. (2005). Spatial disparities in developing countries: Cities, regions and international trade. Journal of Economic Geography, 5(1), 3–21.
Venables, A. J. (2011). Productivity in cities: Self-selection and sorting. Journal of Economic Geography, 11(2), 241–251.
Wang, W. (2021). The heterogeneity of agglomeration effect: Evidence from Chinese cities. Growth and Change, 52(1), 392–424.
Xi, Q., Sun, R., & Mei, L. (2021). The impact of special economic zones on producer services productivity: Evidence from China. China Economic Review, 65, 101558.
Author information
Authors and Affiliations
Corresponding author
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
About this article
Cite this article
Lv, D., Zhang, L., Lu, R. et al. Industry characteristics and agglomeration of heterogeneous firms. J. Ind. Bus. Econ. 49, 31–49 (2022). https://doi.org/10.1007/s40812-021-00206-w
Received:
Revised:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s40812-021-00206-w