Economic Transition, Dynamic Externalities and City-industry Growth in China

Using data on two-digit manufacturing industries for prefecture- level cities during the period of 2000-05, this study found a significant non-linear relationship between dynamic externalities and city-industry growth. Industrial specialisation and local competition may help city-industry growth, but may harm growth when they exceed a certain level. Diversity helps industry growth, but only when it reaches a certain level. Liberalised, globalised and locally protected industries are more likely to benefit from dynamic externalities. Industries located in cities with greater authorities are also found to grow faster. The empirical findings indicate that economic transition has created conditions to allow a larger role of dynamic externalities in stimulating city-industry growth.