Internal Presentation: "Urban Density, Human Capital, and Productivity in Service Industries: An Analysis of Firm-Level Data of China"

This Thesis aims to empirically investigate the links between urban density, human capital and productivity in service industries. By using firm-level data of manufacturing and service industries in China, I estimate the production function and compare how density effects vary between manufacturing and services and between producer services and non-producer services. Results show there exist significant economies of density in both the manufacturing sector and the service sector, and that doubling city population density increases productivity in services by around 10% to 11%, as compare with around 7.5% that in estimated for manufacturing firms. Moreover, I divide the service-firm sample into four subsamples: producer services, non-producer services, wholesale trade and retail trade. After controlling for firm-level human capital (the proportion of employees with at least a Bachelor's Degree) and other firm characteristics, the estimated population density effects on productivity are about 6%, 11%, 13% and 19% for producer services, non-producer services, wholesale trade and retail trade respectively. On average a larger proportion of employees with Bachelor's degree or higher are hired in producer services. Larger human capital effects on productivity are also found. Some possible sources of the economies of density are investigated. Firm-level economies of scale are found among service firms but not among manufacturing firms, whereas localization economies are found in both service and manufacturing firms, whereas localization economies are found in both service and manufacturing industries. Estimates suggest that a larger share of better educated employees are hired in producer service industries in cities with denser employment, while the opposite is true for the other service firms. These results suggest there is better matching between firms and labor in cities with denser population and employment