Disentangling agglomeration economies from selection under policy distortions in China
研究中国城市群中生产率提升的来源，发现集聚和选择效应共同作用，而产业支持政策虽缓解选择惩罚却削弱集聚收益，微观分析显示低效企业从密集城市的生产率溢出中获益。
This paper explores the competing sources of productivity gains observed in China’s urban agglomerations focusing on three pillar industries: agro-food processing, textiles and electronics. The main results reveal that the higher aggregate productivity observed in denser Chinese cities is driven by both agglomeration and selection forces. Subsequent analysis shows that industrial support policies help to mitigate the selection penalty, but come at the expense of reducing agglomeration benefits. Complementing the city-level analysis, we estimate dynamic and distributive firm-level panel data models to explore the policy rationale of propping up inefficient firms, despite creating a less competitive environment. The micro-based results reveal that inefficient firms targeted by industrial support policies benefit from productivity spillovers in denser cities, mainly in the electronics industry, providing some policy rationale for keeping them in the market.