By Cindy Feng  

Agglomeration externalities is defined as the economic benefits from concentrating firms, housing, and output. This study investigates the impact of agglomeration externalities of industrial firms on product innovation output in China. In the research, I specified the impact of agglomeration into three types: Marshallian or localization externalities, defined as the impact of collocating with same-industry firms; Urbanization economies, defined as the impact of collocating with different-industry firms, and Porter externalities, the impact of competing with same-industry firms as a result of localization. My result suggests endogenous spatial selection of firms account for most of the agglomeration impacts we observe. Despite so, urbanization economies is still impactful in boosting a firm’s innovation performance, and should be taken into account as the government implements policies that boost firm performance.

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Advisors: Professor Charles Becker, Professor Kent Kimbrough | JEL Codes: R3, D24, R50