Understanding urban concentration of complex manufacturing activities in China

The increasing prominence of urban scaling laws highlights the importance of a systematic understanding of the variational scaling rates for different economic activities. In this article, we utilize several datasets to provide the first systematic investigation of the urban scaling of manufacturing industries in China. Most existing literature assumes that the divergence in urban scaling can be explained by returns to agglomeration, with a few exceptions instead highlighting the role of knowledge complexity or a mixture of both. Our main purpose in this paper is to explain the inter-sector variation of urban scaling rates. In doing this, we provide a clearer approach to demonstrating the relations between urban scaling, returns to agglomeration, and knowledge complexity. Our findings are twofold. First, after uncovering the scaling rates (denoted as urban concentration) and returns to agglomeration (denoted as urban productivity) for each sub-manufacturing sector, we prove that, rather than being a positive predictor, returns to agglomeration is slightly negatively associated with urban scaling rates. This finding reveals that urban concentration of manufacturing may not simply be a natural consequence driven by the maximization of performance. We also show that this result of the manufacturing system contrasts with what would be found in other pure knowledge systems such as patents. Secondly, we measure the complexity for each sector and demonstrate that the variation of urban concentration can be largely explained by their complexity, consistent with the knowledge complexity perspective. Specifically, complex manufacturing sectors are found to concentrate more in large cities than less complex sectors in China. This result provides support for the view that the growth of complex activities hinges more on diversity than on efficiency. The findings above can greatly reduce the current level of ambiguity associated with urban scaling, returns to agglomeration and complexity, and have important policy implications for urban planners, highlighting the significance of a more balanced and diversified configuration of urban productive activities for the growth of innovation economy.