Producer Service's Improvement and Manufacturing Agglomeration: Mechanism Analysis and Evidence from China – Taking Trade Cost as Mediating Variable

This paper identifies a mechanism of the chain-effects from producer service tomanufacturing agglomeration via changing trade costs, and builds a simple model for empirical work. By making use of data from China at industry level, it empirically checks the mediating effects of trade costs at two levels. The results show that the effect of producer services on manufacturing agglomeration is mainly made by changing trade costs while the mediating effects of trade costs vary among different sectors. Specifically?the mediating effect is larger in technology-intensive manufacturing industries than in labor or capital intensive manufacturing industries.