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Post-Communist Economies
Vol. 21, No. 1, March 2009, 103–115
Industrial agglomeration and labour productivity in transition: an
empirical study of Chinese manufacturing industries
Can-fei He* and Sheng-jun Zhu
College of Urban and Environmental Sciences, Peking University, Beijing, China
( Received 6 March 2008; final version received 30 April 2008 )
China has experienced substantial spatial restructuring of manufacturing industries since the
economic reforms. Chinese manufacturing industries reversed an early drop in industrial
agglomeration and have been increasingly agglomerated since the early 1990s. Resource-
intensive industries have been relatively dispersed while export-oriented industries have been
progressively agglomerated. Industries driven by market and global forces are agglomerated
while those favoured and protected by local governments are widely dispersed. Statistical
analysis confirms a significant positive relationship between industrial agglomeration and
labour productivity in China. This positive relationship was particularly prominent in
liberalised and globalised industries in the 1980s and has been found in most industries since
the 1990s. The empirical results imply that marketisation and globalisation have stimulated
industrial agglomeration and thereby raised industrial competitiveness in China.
The geographical clustering of manufacturing employment is pervasive in developed
economies. Firms are not distributed uniformly in space, but rather agglomerate in some
places and regions. There exist many examples of spatially clustered industries, including the
often cited high-tech clusters in Silicon Valley and clusters of traditional industries such as those
in the Third Italy, and the US carpet industry in Dalton (Devereux et al.
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