Essays on empirical industrial organization and spatial economics

Abstract

The thesis explores industrial agglomeration, production networks, and place-based industrial policies, analyzing their implications for empirical industrial organization and spatial economics. This thesis improves the measurement of industrial clustering, examines how production linkages and geographical proximity influence firms' heterogeneous performance, and provides insights into the evaluation of industrial policies.

Firms benefit from input-output relationships within production networks, incentivizing them to co-locate and form industrial clusters. The first chapter examines the formation of industrial clusters with input-output linkages in the context of Chinese manufacturing. This chapter documents China's industrial clustering patterns over nearly two decades using detailed firm-level data and analyzes their impact on firm performance and regional economic growth. We introduce a new measure of industrial clustering that incorporates both horizontal agglomeration (firms within the same industry) and vertical clustering (firms from upstream and downstream industries). The analysis reveals robust industrial clustering in China, with substantial variation across industries and regions. The overall spatial concentration of China's manufacturing sector has changed considerably over time, peaking in 2004, followed by a shift of industries from the eastern coast to the central part of the country. Micro-level evidence demonstrates that industrial clustering enhances firms' productivity, reduces sourcing costs, and fosters innovation, with vertical clustering playing a key role in these effects. It further enhances regional industrial dynamism and economic growth by encouraging new firm entries and accelerating sales growth among incumbent firms. Variance decomposition indicates that horizontal clustering accounts for 83% of the variation in regional industrial sales, while upstream and downstream clustering contributes the remaining 17%. Neglecting production networks and vertical clustering significantly underestimates the benefits of industrial clustering.

Place-based industrial policies have gained global prominence in recent decades. The second chapter examines the impact of place-based industrial policies on industrial geography and regional economic growth in China, emphasizing the role of input-output linkages in production networks. Based on comprehensive geo-coded data on new firm registrations and Development Zone (DZ) policies in China from 1979 to 2019, we present novel evidence of both direct and indirect spillover effects, using a staggered differences-in-differences framework. Our findings reveal that most Development Zones target specific industries, fostering policy-induced clusters within these sectors. This direct effect is mainly attributed to reduced entry costs facilitated by subsidies and loans. Additionally, the DZs significantly boosted growth in the downstream and upstream sectors of the DZ-target industries by promoting new firm entry and increasing sales of incumbent firms. The effects are stronger for industries that are more closely linked to the DZ-target industries through input-output connections. The spillover effects on input-output-linked industries arise from cost reductions and demand increases facilitated by industrial clustering. Moreover, the observed effects are primarily driven by private firms. Overall, Development Zones substantially contributed to regional economic development, with spillovers to upstream and downstream industries (and their interactions with DZ-target industries) playing a crucial role.