Institute for Economic and Social Research

Virtual Workshops on Topics in Regional and Urban Economics: China, Asia, and Beyond|Yi Niu


Title: Reassessing the Firm Selection Effects of City Size: Evidence from Infrastructure Construction in China

Speaker:Yi Niu, Capital University of Economics and Business at a Glance

Time:November 6th, 2020, 9:00-10:30AM


This paper re-investigates whether larger cities eliminate more low-productivity firms, the so-called firm selection hypothesis. We exploit a huge boom of infrastructure construction in China during 1998- 2007. We find that firm selection is quite apparent when we compare large cities to small cities which  are not connected by controlled-access highways; however, firm selection disappears once we compare large cities to small ones which are connected by highways. This result suggests that market size is  dictated less by geography (city boundaries), but rather by transportation costs. The estimated effects of firm selection are robust to the potential endogeneity of highway construction. Moreover, evidence for firm selection is generally absent in inland provinces, perhaps because the market economy was relatively poorly developed in those areas during our study period.  


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