Agglomeration and Markup

34 Pages Posted: 24 May 2012

See all articles by Yi Lu

Yi Lu

National University of Singapore (NUS) - Department of Economics

Zhigang Tao

The University of Hong Kong - School of Business

Linhui Yu

The University of Hong Kong - School of Business

Date Written: May 1, 2012

Abstract

Agglomeration brings costs (e.g., intensified local competition) as well as benefits (e.g., knowledge spillover). It is important to examine the net impact of agglomeration to understand the geographic distribution of economic activities. In this study, we use firm markup (defined as the ratio of price over marginal cost) to capture the net impact of agglomeration. Using data from Chinese manufacturing firms in the 1998-2005 period, we first recover the markup ratio for each firm following De Locker and Warzynski (2012), and then use changes in industrial affiliation as a quasi-experiment to identify the impact of agglomeration on firm markup. Our difference-in-differences (DID) estimation shows that agglomeration has a negative impact on firm markup, suggesting that the devastating competition effect dominates the beneficial spillover effect in Chinese context. Moreover, we find that the impact of agglomeration on firm markup varies across different industries and types of firms.

Keywords: Agglomeration, Firm Markup, Difference-in-Differences Estimation, Spillover effect, Competition effect

JEL Classification: R11, L25, D22

Suggested Citation

Lu, Yi and Tao, Zhigang and Yu, Linhui, Agglomeration and Markup (May 1, 2012). Available at SSRN: https://ssrn.com/abstract=2065303 or http://dx.doi.org/10.2139/ssrn.2065303

Yi Lu (Contact Author)

National University of Singapore (NUS) - Department of Economics ( email )

1 Arts Link, AS2 #06-02
Singapore 117570, Singapore 119077
Singapore
65-65166834 (Phone)

HOME PAGE: http://ylu6.weebly.com

Zhigang Tao

The University of Hong Kong - School of Business ( email )

Meng Wah Complex
Pokfulam Road
Hong Kong
China
(852) 2857-8223 (Phone)
(852) 2858-5614 (Fax)

Linhui Yu

The University of Hong Kong - School of Business ( email )

Meng Wah Complex
Pokfulam Road
Hong Kong
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
128
Abstract Views
970
rank
264,142
PlumX Metrics