Agglomeration effects of high-tech industries: Is government intervention justified?

Abstract

Government intervention in industrial development is prevalent across both developed and developing nations. This paper evaluates the efficacy of Chinese government intervention in high-tech industries in fostering economic development. Methodologically, we assess government intervention's effectiveness by examining the heterogeneity of agglomeration effects in high-tech industries across various locations before and after policy interventions. Our study reveals several key findings: (1) Overall, high-tech industry agglomeration yields positive intra-industry and local spillover effects. (2) Agglomeration effects exhibit significant spatial and temporal variations. Before 2013, government intervention was limited, and high-tech industries predominantly clustered in the eastern region due to market forces, resulting in significantly positive agglomeration effects. However, post-2013, government intervention became evident, particularly driven by competitive dynamics in less-developed regions and central government support for these areas. Consequently, high-tech industries in these regions generated positive intra-industry and local spillover effects, leading to a shift in the distribution of high-tech industry hubs towards the central and western regions. Nonetheless, agglomeration effects diminished in these regions, signaling distortions. (3) Not all high-tech industries exert positive impacts; for instance, the ICT manufacturing sector, characterized by general technology, demonstrates the most pronounced effects, whereas the aerospace manufacturing industry shows relatively weaker agglomeration effects. (4) High-tech industries primarily enhance industrial profitability by refining intermediate inputs and foster local total factor productivity and green total factor productivity through knowledge spillovers. Consequently, policy interventions should aim to effectively facilitate intermediary mechanisms. These findings offer valuable insights into how governments can judiciously intervene in high-tech industries to promote sustainable economic development.