Agglomeration economies: Modeling and investigation of China

The objective of this study is to improve the existing research on agglomeration economies. This paper uses both the external effect approach and the endogenous effect approach to explain population concentration and determine characteristics of agglomeration economies. In this study, a monopolistic competition model with a general equilibrium framework of a continuous spatial region is developed. In the model, producers\u27 desires for a variety of inputs as well as consumers\u27 preferences for a variety of consumption goods play an important role in agglomeration. For the region as a whole, the model finds that improvement of agricultural production technology and a high share of industrial and service activities increase population concentration in the central city. For the central city in the region, the model concludes that industrial productivity increases with city size, industrial employment size, and the variety of producer services. Data from China are used to investigate the urbanization process in recent years and the industrial productivity in selected Chinese cities. In analyzing the urbanization process, special attention is given to the development of TVEs and the urban non-state sector. Both the random-effects model and the SAR model are employed. In analyzing industrial productivity in cities, the existence of urbanization economies and localization diseconomies is found. In addition, the interaction between region and agglomeration factors is examined. Because of the spatial nature of the data, the SAR model is also used. The study shows that (1) improvement of agricultural production technology promotes the degree of urbanization, and (2) better infrastructure increases productivity in cities. These findings underscore the need for developing countries to advance their agricultural technology and to invest in urban infrastructure