A Study On Effects Of Industry Agglomeration On Total Factor Productivity Of China’s Manufacture Industry

China has been witnessed a rapid economic growth since its reform and openingup to the outside world. However, this process has also been accompanied with severalserious problems. The low level of productive efficiency and increasing regionaldisparities are mostly important of all. Correspondingly, it is a key to solve these twoproblems that how to improve the level of total factor productivity.As another point of view, new economic geography theory focuses on the effect ofagglomeration on productivity. With the assumption of increasing scale return,imperfect competition, and ice trade cost, this theory has a significant advantage overneoclassical theory in explaining the disparity of productivity. In their view,agglomeration can promote total factor productivity through many channels, such asknowledge and technology spillovers, infrastructure and factor resources sharing,forward and backward linkage of industry and et al. Although the theoretical analysis isdefinite, the empirical tests conclusions for which whether agglomeration can promotetotal factor productivity are still ambiguous. Some tests conclusions support thetheoretical analysis while the others not. This shows that the improvement of the levelof agglomeration does not necessarily lead to the improvement of total factorproductivity, there may be a nonlinear relationship between industrial agglomerationand productivity. Based on this, this paper tries to study this question under thenonlinear framework.Firstly, this paper reviews the related literature at home and abroad. Based on this,it calculates and analyzes the level of agglomeration and the level of total factorproductivity, and then analyzes the relationship between them. The result shows thatthere is a huge gap of the level of agglomeration between the East and the Midwest, thelevel of eastern regions are higher than the Midwest. There is a different of total factorproductivity between Eastern and Midwest regions, the East has a higher level andcontinues to grow. Touch the level of agglomeration and total factor productivity together, it find that although a higher level of agglomeration have a rapid growth oftotal factor productivity, there is no clear evidence that there is a non-linear relationshipbetween them.Secondly, this paper researches the relationship between industry agglomerationand total factor productivity. The results indicate that the contribution of agglomerationon total factor productivity mainly depends on technical efficiency, agglomeration has apositive effect on technical efficiency, but has a negative effect on technical progress.The reason for this is that when agglomeration improves within a certain limits, ithelps to increase the correlation between industries, it is conducive to save the cost ofthe enterprise, thereby improving the efficiency of resource allocation. Except that, italso finds that there is a non-linear relationship between them. When agglomerationlevel below a certain threshold, raising of the level of agglomeration will promote thegrowth of total factor productivity; while when above this threshold, they will hinder thegrowth of total factor productivity.Finally, based on the above analysis, we propose some policy suggestions on theadjustment of industry layouts and coordination of regional economic development.