Urbanization and Advantages of Large Cities: Three Essays on Urban Development in China

This dissertation, consisting of three essays on the urban development in China, provides empirical evidence for three related but different topics: urban growth pattern, agglomeration effects in production (production-side benefits of cities), and agglomeration effects in consumption (consumption-side benefits of cities). The first essay examines the growth pattern of Chinese cities at prefectural level or above by applying a non-parametric analysis. The kernel regression reveals the coexistence of a divergent growth pattern for large cities and a convergent growth pattern for small cities. The analysis comparing two different kinds of population data shows that excluding migrant workers in the count of urban population would underestimate the size and growth of large cities, which implies that rural-urban migrants move to large cities disproportionately. The results suggest that policies trying to control the growth of large cities have been ineffective in the past two decades. Using plant-level data in China, the second essay finds that the mechanisms of agglomeration economies vary with industry groups, and there is strong evidence supporting that regional industrial dominance would limit localization economies and diminish the productivity of firms. However, the negative effects of regional industrial dominance seem to be mitigated by a large and diverse urban environment. The conclusion points to the productivity-enhancing effect of agglomeration, and a competitive industrial structure is crucial for the success of the on-going industrial transformation and upgrading in China. Using survey data from China, the third essay reveals a positive relationship between city size and various categories of household consumption expenditures in China. By addressing several potential econometric issues, the analysis finds strong evidence of the agglomeration effect in consumption, which points to the important role that large cities play in enhancing household consumption. Taken together, this dissertation concludes that large cities in China have been dominant during the rapid urbanization and tend to keep growing disproportionately. Large cities in China are more productive and provide higher consumption amenities than small cities. Therefore, a market-driven urbanization process would be more efficient and effective for enhancing both productivity and consumption in China