Investigating China’s Mid-Yangtze River economic growth region using a spatial network growth model

Abstract: https://journals.sagepub.com/doi/full/10.1177/0042098019894232#abstract

Undoubtedly, the urban world has entered a network era in which distinctive flows are circulating, interacting, and dynamically reshaping economic patterns. As centres of economic activities, cities have become networked nodes characterised by interactions between external network linkages and local factors that determine the development path of urban economies. Although the importance of external network linkages for cities is largely recognised, to what extent these network linkages are an influence on urban development, has until now remained ambiguous. This article sheds light on these network effects by examining the ‘actual’ impact of network flows on urban growth at a city region scale focusing on the Mid-Yangtze River (MYR) city region in central China. The novel incorporation of network flow variables in the analysis complements the conventional urban growth model which focuses mainly on the contribution of labour pool, physical capital stock, human capital, and technological advances.

Theoretically, ongoing debate concerning the relationship between urban agglomeration and network economies is attracting more attention - for example, whether agglomeration and network economies are reciprocal or exhibit trade-off relationships. If certain flows not only attract significant endowments such as capital, knowledge and information but also facilitate the development of local industrial clustering or/and encourage local innovative milieu, reciprocal network and agglomeration economies and vice versa are indicated. This article provides an original analytical framework to tackle this issue by combining flow network analysis and spatial econometric modelling. The flow network analysis is based on distance-free capital flows, while a spatial econometric model detects spillovers across proximate entities. The analytical rationale is that the discovery of positive spatial spillovers is normally regarded as strong evidence of urban agglomeration, so if network flow variables specified in the model are found to generate positive spatial spillovers, we can demonstrate empirically the existence of reciprocal relations between network and agglomeration economies.

The article adopts this analytical approach to examine the interplay of agglomeration and network economies in the MYR city region due to its strategic position in China’s urban economic transition. Firstly, city regions generally comprise a group of proximate cities that may benefit from agglomeration economies. Secondly, in contrast to analysis of individual cities or metropolitan areas, the city region scale provides an extended functional space accommodating less distance-dependent flows. Thirdly, city regions, especially those subject to the same institutional planning scheme such as MYR, require less heterogeneity to be controlled for in quantitative analysis.

A two-stage approach to analysis is explicated. First, the calculation of network variables based on geocoded inter-city capital flows, including flow volume and structural network positions. Second, the incorporation of these network variables in the conventional growth model using a spatial econometric modelling method.

It is shown that recent growth is significantly influenced by indigenous capital stock, labor cost and technological advances, by commodity and self-investment flows, and by ‘authority’ and ‘hub’ network capital associated with coexisting endogenous and exogenous spillovers. The results indicate that agglomeration and network economies are two-way interactive mechanisms in the regional growth process. This finding offers a new lens with which to enlighten urban policymakers and market participants on urban agglomeration and network relations and their potential interlocking effect at a city region scale, thereby countering simplistic competitive perspectives. The article finally provides pointers to much-needed further empirical investigation of specific spatial economic settings in which researchers can shed light on the scale-sensitivity of inter-urban flow networks demonstrated by the analysis.

Read the accompanying article on Urban Studies OnlineFirst: https://journals.sagepub.com/doi/full/10.1177/0042098019894232