Spatial Spillovers and Local Determinants: Mechanisms of Manufacturing Agglomeration in China via a Spatial Panel Analysis

Based on the data of 31 Chinese provinces during 2003-2023, this study systemically analyses the direct and indirect factors that affect manufacturing agglomeration in China. The results indicate that population density and economies of scale are significant factors that push local agglomeration, while the economic development level in the region has a direct negative significance.

Most importantly, local protectionism and land price not only block local agglomeration, but also have significant negative spatial spillovers. In particular, protectionism weakens the supply chain, and reduces market opportunities while rising land values increase input costs and reduce credit availability, leading to cancellation or relocation of local firms with a corresponding decline in demand for suppliers in neighbouring parts of the market.