Impact of industrial agglomeration on total factor productivity in the context of embedded global value chains

Abstract

This study examines how industrial agglomeration interacts with global value chains (GVCs) integration to affect total factor productivity (TFP) in China. Using panel data from 30 provinces between 2011 and 2020, we find that agglomeration alone is associated with lower TFP, likely due to congestion and resource misallocation. However, when embedded in GVCs, agglomeration exerts a positive and significant impact on productivity. Mechanism analysis reveals that innovation capacity and industrial competitiveness enhance this effect, especially in regions with high GVC value-added. Heterogeneity analysis further shows that GVC participation amplifies agglomeration’s productivity benefits in high-agglomeration regions, but not in low-agglomeration ones. These findings highlight the need for region-specific policies that promote GVC upgrading, foster innovation and strengthen industrial linkages to support high-quality development.