Relationship between city size and firm productivity – A new interpretation using the Chinese experience |
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| Institution: | 1. International School of Business and Finance, Sun Yat-Sen University, Zhuhai, China;2. Department of Economics, Macquarie University, Sydney, Australia;3. Institute of Industrial Economics, Jinan University, Guangzhou, China;1. Aletheia University, Taiwan;2. National Taichung University of Science and Technology, Taiwan;1. China Economics and Management Academy, Central University of Finance and Economics, No. 39 South College Road, Haidian District, 100081 Beijing, China;2. School of Finance, Jiangxi University of Finance and Economics, Nanchang, China;3. School of Economics, Jiangxi University of Finance and Economics, Nanchang, 330013, China;1. IMUVa, Universidad de Valladolid, Spain;2. Universidad de Murcia, Spain |
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| Abstract: | This paper contributes to the literature on the relationship between city size and firm productivity by focusing on agglomeration, selection (market competition), and sorting (presence of firms with diverse productivity) effects using Chinese firm-level data for 1998–2013. Contrary to the existing literature, our parametric regression estimates from nearly two million firms show that when the selection effect is controlled, productivity advantage in big cities is reversed. This outcome is explained through a quantile regression showing the existence of left-sided sorting (inefficient firms sort themselves to larger cities) in big cities which is not captured in existing empirical literature. We further find that (1) left-sided sorting is stronger in exporters than non-exporters; (2) is also generated mainly in enterprises with high asset-liability ratios; and (3) selection has a positive effect on firm productivity, suggesting that market competition is key in an explanation of the rapid growth of big cities in China. |
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| Keywords: | Productivity advantage Firm sorting Selection Agglomeration China O18 (Economic Development: Urban Rural Regional) R12 (Size and Spatial Distributions of Regional Economic Activity) R30 (Real Estate Markets Spatial Production Analysis and Firm Location: General) |
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