Spatial Dynamics of Chinese Manufacturing Industries: Comparative Advantage versus New Economic Geography

Abstract

This paper analyzes the evolving spatial distribution of manufacturing industries in China. Besides, we explore the substantial determinants by adopting a spatial panel model. The spatial pattern of Chinese manufacturing industries has changed significantly, which is featured by obvious trend of labor intensive industries and some of capital and tech intensive ones in Eastern China spread to Central and Western China. Generally, spatial dynamics of industries present an order to a certain degree. Central China has been the main region where industries spread to, and relative large range of sectors is involved. We test the determinants in terms of comparative advantage and new economic geography. It turns out that the factors driving industry spatial dynamics is not the enlarging regional cost differences of production factors but endogenous agglomeration externalities. Specifically, more and more fierce competition of local firms in same sector has become one of the principal reasons cause spatial relocation. More congestion happens in labor intensive industries compared to technology intensive industries and capital intensive industries. The findings of this study indicate that comparative advantage theory and new economic geography will be suitable in different spatial scape of economic issues. Geographic evolution of industries in one country is less determined by changing regional comparative advantage differences but the endogenous effect of varying agglomeration externalities.