 Relationship between city size and firm productivity – A new interpretation using the Chinese experienceYang Yang, Pundarik Mukhopadhaya and Zhuangxiong Yu Economic Modelling, 2020, vol. 93, issue C, 546-558 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. Keywords: Productivity advantage; Firm sorting; Selection; Agglomeration; China (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:93:y:2020:i:c:p:546-558 DOI: 10.1016/j.econmod.2020.09.009 Access Statistics for this article Economic Modelling is currently edited by S. Hall and P. Pauly More articles in Economic Modelling from Elsevier |
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