Open Access Peer-reviewed Research Article

How does industrial agglomeration affect firm performance of Chinese high and new technology industry?

Main Article Content

Qianfei Shu corresponding author


Many researches have discussed the relationship between industrial agglomeration and firm performance. However, the relationship between policy-directed industrial agglomeration in the context of Chinese high and new technology (HNT) industry remains unclear. This study aims to investigate the correlation between industrial agglomeration and China's HNT firm performance by using the two-stage least squares (2SLS) and the system generalized methods of moments (GMM) approaches on account of the panel data of HNT industries in China during 2004-2015. The estimation results revealed that industrial agglomeration has a positive impact on HNT firm performance, including productivity and sales growth. To be specific, by taking advantage of agglomeration effect, foreign-owned firms have demonstrated excellent performance in both labor productivity and sales growth. In contrast, private-owned firms have not performed well in terms of productivity, but have shown sound performance in term of sales growth. Unfortunately, state-owned firms do not benefit from the industrial agglomeration. Moreover, large firms perform better in respect of labor productivity, while small firms experience higher sales growth.

high and new technology industry, labor productivity, sales growth, China

Article Details

How to Cite
Shu, Q. (2023). How does industrial agglomeration affect firm performance of Chinese high and new technology industry?. Frontiers in Management and Business, 4(1), 303-315.


  1. Ellison G and Glaeser EL. Geographic concentration in US manufacturing industries: A dartboard approach. Journal of Political Economy, 1997, 105}(5): 889-927.
  2. Fujita M. A monopolistic competition model of spatial agglomeration: Differentiated product approach. Regional Science and Urban Economics, 1988, 18}(1): 87-124.
  3. Krugman P. Geography and Trade. MIT Press, Cambridge, MA, 1991a.
  4. Krugman P. Increasing returns and economic geography. Journal of Political Economy, 1991b, 99}(3): 484-499.
  5. Marshall A. Principles of economics. London: Macmillan.
  6. Porter, E.M., 1998, Clusters and the new economics of competition, Harvard Business Review, 1920, 76}(6): 77-90.
  7. Combes PP and Duranton G. Labour pooling, labour poaching, and spatial clustering. Regional Science and Urban Economics, 2006, 36}(1): 1-28.
  8. Arzaghi M and Henderson V. Networking off Madison avenue. The Review of Economic Studies, 2008, 75}(4): 1011-1038.
  9. Ellison G, Glaeser EL and Kerr WR. What causes industry agglomeration? Evidence from coagglomeration patterns. American Economic Review, 2010, 100}(3): 1195-1213.
  10. Ma YF and Goo YJ. Technical Efficiency and Productivity Change in China's High-and New-Technology Industry Development Zones. Asian Business and Management, 2005, 4}(3): 331-355.
  11. Wang J. The economic impact of special economic zones: Evidence from Chinese municipalities. Journal of development economics, 2013, 101}: 133-147.
  12. Wei SJ. The open door policy and China’s rapid growth: evidence from city-level data. In: Ito, Takatoshi, Krueger, Anne O. (Eds.), Growth Theories in Light of the East Asian Experience. University of Chicago Press, Chicago, 1995.
  13. Zeng DZ. China's special economic zones and industrial clusters: the engines for growth. Journal of International Commerce, Economics and Policy, 2012, 3}(3): 1250016.
  14. Lu Y, Wang J and Zhu L. Place-based policies, creation, and agglomeration economies: Evidence from China's economic zone program. American Economic Journal: Economic Policy, 2019, 11}(3): 325-60.
  15. Hong J, Feng B, Wu Y, et al}. Do government grants promote innovation efficiency in China's high-tech industries? Technovation, 2016, 57}: 4-13.
  16. Hu C, Xu Z and Yashiro N. Agglomeration and productivity in China: Firm level evidence. China Economic Review, 2015, 33}: 50-66.
  17. Ito B, Xu Z and Yashiro N. Does agglomeration promote internationalization of Chinese Firms ? China Economic Review, 2015, 34}: 109-121.
  18. Zhang H. How does agglomeration promote the product innovation of Chinese firms? China Economic Review, 2015, 35}: 105-120.
  19. Alder S, Shao L and Zilibotti F. Economic reforms and industrial policy in a panel of Chinese cities. Journal of Economic Growth, 2016, 21}: 305-349.
  20. Zheng S, Sun W, Wu J, et al}. The birth of edge cities in China: Measuring the effects of industrial parks policy. Journal of Urban Economics, 2017, 100}: 80-103.
  21. Tian X and Xu J. Do place-based policies promote local innovation and entrepreneurship? Review of Finance, 2022, 26}(3): 595-635.
  22. Wei W, Zhang WL, Wen J, et al}. TFP growth in Chinese cities: The role of factor-intensity and industrial agglomeration. Economic Modelling, 2020, 91}: 534-549.
  23. Lin HL, Li HY and Yang CH. Agglomeration and productivity: Firm-level evidence from China’s textile industry. China Economic Review, 2011, 22}(3): 313-329.
  24. Lu JY and Tao ZG. Trends and determinants of China’s industrial agglomeration. Jouranl of Urban Economics, 2009, 65}(2): 167-180.
  25. Yang C, Lin H and Li H. Influences of production and R&D agglomeration on productivity: Evidence from Chinese electronics firms. China Economic Review, 2013, 27}: 162-178.
  26. Biesebroeck JV. Firm size matters: Growth and productivity growth in African manufacturing. Economic Development and Cultural Change, 2005, 53}(3): 545-583.
  27. Palangkaraya A, Stierwald A and Yong J. Is firm productivity related to size and age ? The case of large Australian firms. Journal of Industry, Competition and Trade, 2009, 9}(2): 167-195.
  28. Rafiq S, Salim R and Smyth R. The moderating role of firm age in the relationship between R&D expenditure and financial performance: Evidence from Chinese and US mining firms. Economic Modelling, 2016, 56}: 122-132.
  29. Mehran H. Executive compensation structure, ownership, and firm performance. Journal of Financial Economics, 1995, 38}: 163-184.
  30. Helpman E, Melitz MJ and Yeaple SR. Export versus FDI with Heterogeneous Firm. American Economic Review, 2004, 94}(1): 300-316.
  31. Li X, Wu X and Tan Y. Impact of special economic zones on firm performance. Research in International Business and Finance, 2021, 58}: 101463.
  32. Li B and Lu Y. Geographic concentration and vertical disintegration: evidence from China. Journal of Urban Economics, 2009, 37}: 46-68.
  33. Davis DR and Weinstein DE. Market access, economic geography and comparative advantage: an empirical test. Journal of International Economics, 2003, 59}: 1-23.
  34. Hanson GH. Market potential, increasing returns and geographic concentration. Journal of International Economics, 2005, 67}: 1-25.
  35. Krugman P. Scale economies, product differentiation, and the pattern of trade. The American Economic Review, 1980, 70}: 950-959.
  36. Li D, Lu Y and Wu M. Industrial agglomeration and firm size: Evidence from China. Regional Science and Urban Economics, 2012, 42}(1-2): 135-143.
  37. Arellano M and Bond S. Some tests of specification for panel data: Monte Carlo evidence and an application to employment equation. Review of Economic Studies, 1991, 58}(2): 277-298. url{
  38. Blundell R and Bond S. Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 1998, 87}(1): 115-143.
  39. Stock JH and Yogo M. Testing for weak instruments in linear iv regression, in dwk andrews and jh stock, eds., identification and inference for econometric models: Essays in honor of thomas j. rothenberg. cambridge: Cambridge university press, 2005.
  40. Guo D, Jiang K, Xu C, et al}. Clustering, growth and inequality in China. Journal of Economic Geography, 2020, 20}(5): 1207-1239.
  41. Hashiguchi Y and Tanaka K. Agglomeration and firm-level productivity: A Bayesian spatial approach. Regional Science, 2015, 94}(s1): s95-s114.
  42. Long C and Zhang X. Cluster-based industrialization in China: Financing and performance, Journal of International Economics, 2011, 84}(1): 112-123.
  43. Sonobe T and Otsuka K. Cluster-based industrial development: An East Asia model. New York: Palgrave MacMillan, 2006.
  44. Bai Y and Jia R. The oriental city: political hierarchy and regional development in China. Working Paper AD1000-2000, Chinese University of Hong Kong and UC-San Diego, 2018.
  45. Xu C. The fundamental institutions of China's reforms and development. Journal of Economic Literature, 2011, 49}(4): 1076-1151.
  46. Huang Z, Zhang X and Zhu Y. The role of clustering in rural industrialization: A case study of the footwear industry in Wenzhou. China Economic Review, 2008, 19}(3): 409-420.
  47. Ruan J and Zhang X. Finance and cluster-based industrial development in China, Economic Development and Cultural Change, 2009, 58}(1): 143-164.
  48. Yao D and Whalley J. The China (Shanghai) pilot free trade zone: Background, developments and preliminary assessment of initial impacts. The World Economy, 2016, 39}(1): 2-15.