Urban artificial intelligence, market turnover, and productivity

Abstract

Firm dynamics are a fundamental driver of regional productivity growth. This study examines how urban AI development shapes firm dynamics and regional productivity using Chinese city-level and firm registration data (2014–2023). We find AI stimulates both firm entry and exit while raising incumbent firm productivity. Mediation analysis shows that increased entry is the primary channel through which AI enhances regional productivity. Effects are stronger in eastern regions, core cities, and technology-intensive sectors. In some traditional industries, AI leads to significantly stronger exit than entry effects, and even reduces productivity in certain sectors. Spatial econometric results reveal AI attracts entry to specific locations (a “siphoning effect”) while reducing exit pressures elsewhere (a “buffering effect”). The research offers new evidence on how AI influences economic efficiency through firm reallocation, with implications for regional policy.