Urban agglomeration and entrepreneurship

Regional human capital spillovers and market integration

Economic geography of entrepreneurship in China

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Larger and richer cities tend to attract spatial clusters of entrepreneurial activity. The booming entrepreneurship is observed not only in first-tier cities (Beijing, Shanghai, Guangzhou, and Shenzhen) but also in some provincial cities in the western regions, such as Xi'an and Chengdu.

Entrepreneurship, human capital spillovers, and market integration

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Three hypothesis:

1. Cities with a higher level of human capital spillovers will gain more new innovative firms?
2. Larger market integration effects lead to higher new firm formation rates.
3. Urban agglomeration enhances human capital spillovers and market integration effects. The effects are stronger in higher tiers of urban agglomerations.



Innovation-driven entrepreneurship

We exploit annual firm registration records from 2000 to 2015 in the registry database of State Administration for Industry and Commerce (SAIC), which is the official agency for firm registration in China, to calculate new firm formation rates. This annual database covers the information of all firms that registered by the end of each year, with a variable noting the firm's operation status: “New Opening,” “In Operation,” or “Closed.”

The average number of newly registered firms over 2000–2015 is roughly 9000, with a standard deviation of 20,000 or so, implying large regional variation in entrepreneurship.

Local measures of human capital and market size

We use the number of colleges and universities in a city to measure the city's human capital level. The number of universities in each city is calculated based on the full list of 2015 regular high education institutions released by the Ministry of Education of the People's Republic of China. Among the local colleges and universities in each city, we further distinguish Project 985 and 211 universities from other universities.

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What we find...

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First-tier urban agglomerations features larger human capital spillovers and market integration effects in the , within which cities have stronger economic bases, better institutions, and are highly integrated. Cities in the Beijing-TianjinHebei Urban Agglomeration, the Pearl River Delta Urban Agglomeration, and the Yangtze River Delta Urban Agglomeration are the most vibrant and integrated urban areas that can retain talents and generate high demand for local goods and services. 

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A strong role of local market size and market integration in determining local entrepreneurship, possibly because larger market size leads to stronger incentives for individuals to become entrepreneurs


Siqi Zheng

MIT Sustainable Urbanization Lab, Department of Urban Studies and Planning, Center for Real Estate


Rui Du

Department of Economics, Oklahoma State University


Zheng, S., & Du, R. (2020). How does urban agglomeration integration promote entrepreneurship in China? Evidence from regional human capital spillovers and market integration. Cities, 97, 102529.