Geographical agglomeration and co-agglomeration of foreign and domestic enterprises: a case study of Chinese manufacturing industries

Abstract

Industrial agglomeration has been pervasive owing to natural advantages, spillover effects and institutional advantages. The co-agglomeration of foreign and domestic enterprises may be a driving force of intra-industrial agglomeration. Theories however provide conflicting predictions on whether foreign and domestic enterprises share similar locations. Based on data from the Annual Survey of Industrial Firms in 2005 in China, this study finds that foreign enterprises are considerably more agglomerated than domestic enterprises, and there exist significant industrial variations in the intra-industry co-agglomeration of foreign and domestic enterprises. Statistical analysis suggests that foreign-specific agglomeration and dependence on intermediate inputs from primary industries discourage the co-agglomeration of foreign and domestic enterprises. Differences in equipment, technology and labour productivity result in locational patterns of foreign enterprises distinct from those of domestic enterprises. Meanwhile statistical results confirm the positive role of external economies and knowledge spillover effects in driving the co-agglomeration of foreign and domestic enterprises.