Determinants of high tech industries' location in China

Abstract

Since high tech industry has been defined in China in the early 21st century, the spatial distribution of the industry has been uneven and concentrated mainly in the eastern coastal region. Worst still, this phenomenon seems to be getting serious. In order to explain reasons behind, this study constructs a comprehensive model with uniquely designed variables to test the potential location determinants using the annual provincial-level panel data from 2002 to 2012. Apart from the big picture, the current paper goes deep to study the situations of the 5 sub-industries.

Between two groups of independent variables, in total 12 regressors, this paper finds that agglomeration effect is the strongest location driver for the industry. The consumption level of local market and the general location characteristics, such as economic performance and openness of the economy, are also positively influential. These findings imply that, without heavy interventions, the uneven distribution will become worse in the future.

The relations between the location of industry and two variables associated with the local R&D resources, which are labor’s higher education attainment and the number of R&D institutions, are insignificant in this study. Yet, these two variables, according to the literature, are found to have robust relations with the capability of innovation in China. Thus, the results of this paper not only show that two above-mentioned variables have no significant impacts on location decisions of the high tech firms but also prove that the high tech industry is not that “innovative”.

Although different sub-industries have different sensitivities towards the location determinants, the locational concerns for them majorly follow the big picture. One more conclusion drawn from this part is that the agglomeration effect is specific to the sector, which means that a cluster filled with firms working in the similar sector is more attractive to the firms than a general high tech cluster.