Does geographical decentralisation harm the total factor productivity of firms in China?

ABSTRACT

Under dual market and policy forces, industries vacated central business districts in Chinese cities, showing a decentralised layout. Using Chinese industrial firms’ micro-data (2004–12), with township-level division as the unit, we describe urban industrial decentralisation and polycentric layout, exploring their impact on firms’ total factor productivity (TFP). We found that: (1) industrial decentralisation negatively impacted TFP during the early and middle stages of urbanisation; (2) the polycentric layout can alleviate the firms’ TFP losses caused by decentralisation; and (3) industrial decentralisation reduces diversified agglomeration, lowering TFP. The conclusions of this study provide policy recommendations for urban industrial spatial planning.

KEYWORDS:

• industrial decentralisation
• polycentric spatial layout
• total factor productivity
• Chinese cities

JEL:

• D24
• P25
• R12

DISCLOSURE STATEMENT

No potential conflict of interest was reported by the authors.

Notes

1. The policy of ‘suppress the second industry and develop the third industry’ refers to that of promoting the development of the modern service industry as the main carrier, promoting the transformation of the function of the CBD from production to service through the transformation of land function, moving out the traditional industrial firms with lower land-use efficiency and heavy pollution in the CBD, making room for high-tech and low-pollution tertiary industries, and improving the land-use efficiency in the CBD. ‘Retreat from city to industrial park’ refers to the establishment of industrial parks in the city’s suburbs to attract industrial firms with various preferential policies. On the one hand, it can vacate the land in the CBD and, on the other, can realise the re-agglomeration of firms moving out of the CBD. Both are place-based policies to evacuate the traditional industry in the CBD. These two industrial policies are being implemented in various cities of China.

2. Take Dongzhimen township in Dongcheng county of Beijing as an example: the area of the township is 0.7572 square miles with a resident population of 48,000.

3. There is no consistent standard to delineate the CBD in China. Therefore, we consider that a CBD is the area where all the firms in the city are concentrated, as well as the working place of commuter workers (Alonso, 1964). The CBD will not change rapidly; therefore, the town with the highest employment density within the city is designated as the CBD.

Additional information

Funding

This study was supported by the National Natural Science Foundation of China [grant number 72203018] and the National Office for Philosophy and Social Sciences [grant number 22CJL031].