City industry growth in China: Perspectives of dynamic externalities and economic transition

New economic growth theories stress the role of dynamic externalities in driving economic growth.Three types of dynamic externalities,including MAR externalities,Porter externalities and Jacob externalities,are tested in a variety of empirical studies although results are rather inconclusive.This study proposes that impacts of dynamic externalities on local growth are conditional on economic transition in China.Using data on two digit manufacturing industries at the prefecture level during the period of 2000~2005,this study found a significant nonlinear relationship between dynamic externalities and local industrial growth.Industrial specialization and local competition may help city industry growth but hurt local growth when they exceed a certain level.Diversity helps industry growth but only when it reaches a certain level.This study also found that liberalized,globalized and protected industries are more likely to benefit from dynamic externalities.Industries located in cities with greater authorities and responsibilities are found to grow faster.The results clearly suggest that economic transition has created conditions to allow more significant roles of dynamic externalities in stimulating city industry growth in China.