How city size affects firm survival: evidence from Chinese enterprise registration data

Using firm-level registration data and city-level statistics, this paper empirically investigates the causal relationship between city size and firm survival. The results reveal that firms in larger cities exhibit higher survival rates. Mechanism analysis suggests that larger cities create positive externalities - such as increased openness level, lower entry cut-off, and enhanced innovation capacity - that help mitigate the adverse effects of higher wages and costs. However, this positive relationship does not increase monotonically. We identify an inverted U-shaped relationship between Chinese city size and firm survival from 2001 to 2014, with an optimal city size of 5.59 million people, beyond which congestion costs begin to outweigh the agglomeration benefits.