Industrial clustering and agglomeration economy in Yangtze river delta of China

Abstract

This paper examines the existence of the two effects of agglomeration economies: localisation and urbanisation, in the eleven cities in Yangtze River Delta from the period 1993 to 2006. Factors contributing to agglomeration economies are identified. A production function is then formulated using two-way random effects to estimate the effects of agglomeration economies within the eight industrial groups in the Yangtze River Delta. It was found that while localisation effects are palpable in certain industries, urbanisation effects are less evident. The analysis would help policy makers decide whether they should favour specialisation or diversification for the different industries. Other implications such as relatively insignificant contribution of labour towards productivity and the forces that are hindering agglomeration effects in the regional would also be examined. Policy actions would then be recommended to improve the overall productivity of the region.