City Size, Population Concentration and Productivity: Evidence from China

• Date: 01 January 2019
• Author: Keyun Zhang,Mengyu Yang,Chunlai Chen,Jie Shen
• DOI: http://doi.org/10.1111/cwe.12270
• Published date: 01 January 2019

©2019 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 110–131, Vol. 27, No. 1, 2019

110

*Jie Shen (corresponding author), Lecturer, Department of International Economics, University of

International Relations, China. Email: beannyplay@126.com; Chunlai Chen, Associate Professor, Crawford

School of Public Policy, Australian National University, Australia. Email: chunlai.chen@anu.edu.au; Mengyu

Yang, Lecturer, School of Economics, Yunnan University, China. Email: y_myu@126.com; Keyun Zhang,

Professor, Institution of Regional and Urban Economics, Renmin University, China. Email: zkeyun@126.com.

City Size, Population Concentration and Productivity:

Evidence from China

Jie Shen, Chunlai Chen, Mengyu Yang, Keyun Zhang*

Abstract

This paper investigates the impact of China’s city size and urban population

concentration on city productivity by developing a distinctive index based on global

nighttime light data. Using the panel data of 280 prefecture cities from 2004 to 2013

and employing dynamic system generalized method of moments and panel threshold

model regression techniques, our results show that city size has a positive impact on city

productivity; therefore, cities in China still have the potential to expand. While moderate

urban population concentration can benet city productivity, excessively concentrated

urban population distribution may impede the growth of city productivity. We also nd

that the level of labor income signicantly affects the impacts of urban agglomeration

on labor productivity. Therefore, our results imply that city development policies should

focus more on how to appropriately allocate economic activities and adjust population

distribution in urban areas according to different stages of economic development.

Key words: city size, nighttime light data, population concentration, productivity

JEL codes: O18, R11, R12, R58

I. Introduction

Cities, especially mega-cities, are considered the drivers of economic development.

Recently, issues of city size and urban population distribution have fueled erce debate

in academic and policy circles in China. In classic regional economic theory, three

typical regional problems are identied: backward, depressed and excessive growth. As

aggregates of economic activity (Zhang, 2003), cities are mainly faced with excessive

growth problems. It is commonly agreed that urban growth signicantly benets from

the agglomeration of capital, human resources and technology; higher degrees of

©2019 Institute of World Economics and Politics, Chinese Academy of Social Sciences

City Size, Population Concentration and Productivity 111

knowledge spillover; and larger consumer markets. However, over-concentration can

also cause negative effects, such as trafc jams, environmental pollution, inated costs

and social instability (Albouy et al., 2016). The link between urban spatial concentration

and growth is complex and the dynamic gains of agglomeration have to be weighed

against the costs of static congestion diseconomies, which determine the optimal size of

a city (Bertinelli and Black, 2004). Once a city exceeds the optimal threshold, further

population migration will lead to a decrease in city productivity and aggravate problems.

Based on this theory, many countries take measures to control city size and population

migration.

For a long period, the Chinese government retained extremely tight control over

city size expansion. At the National Urban Planning Conference in 1980, the Chinese

government adopted a policy to control the size of large cities, rationally develop

medium-sized cities and promote the development of smaller cities. In 2014, the State

Council published the Opinions on Further Promoting the Reform of the Household

Registration System, which recommended that the population in large cities should be

strictly controlled. However, these policies seemingly failed to function as planned. For

example, the Beijing Urban General Plan (2004–2020) specified the targeted number

of residents in 2020 at approximately 18 million; however, the number of residents in

Beijing had already reached 18.6 million by 2009 (NBS, 2016).

Therefore, is it reasonable or necessary for the government to control city size?

What are the potential impacts of city size and urban population distribution on city

productivity? Do other factors, such as labor income, inuence the relationship between

urban agglomeration and productivity? These are the main questions of interest in the

present paper.

The rest of the paper is organized as follows. Section II provides a brief review of

the literature related to these issues and the purpose of our research. Section III presents

the theoretical framework and analytical methods. Section IV describes the variables

and data source. The main results are reported and discussed in Section V. Finally,

Section VI concludes and proposes some policy implications.

II. Literature Review

The formation of a city involves the clustering of economic activities, thus city

expansion is associated with the allocation and concentration of population, land and

industries. Marshall’s (1890) pioneering work rst tried to explain the positive impacts

of agglomeration externalities on economic growth from the perspective of sharing a

labor pool, intermediate products and specialized skills. Since then, many economic