How does industrial agglomeration affect firm performance of Chinese high and new technology industry?

Abstract

Many researches have discussed the relationship between industrial agglomeration and firm performance. However, the relationship between policy-directed industrial agglomeration in the context of Chinese high and new technology (HNT) industry remains unclear. This study aims to investigate the correlation between industrial agglomeration and China's HNT firm performance by using the two-stage least squares (2SLS) and the system generalized methods of moments (GMM) approaches on account of the panel data of HNT industries in China during 1998-2015. The estimation results revealed that industrial agglomeration has a positive impact on HNT firm performance, including productivity and sales growth. To be specific, by taking advantage of agglomeration effect, foreign-owned firms have demonstrated excellent performance in both labor productivity and sales growth. In contrast, private-owned firms have not performed well in terms of productivity, but have shown sound performance in term of sales growth. Unfortunately, state-owned firms do not benefit from the industrial agglomeration. Moreover, large firms perform better in respect of labor productivity, while small firms experience higher sales growth.