How do manufacturing and producer service agglomerations affect urban innovation differently? Empirical evidence from China

Despite the growing body of literature on the influence of industrial agglomeration on urban innovation, no consensus has been reached on the mechanism of the spillover effect. This empirical study exploits heterogeneity in spillover effects between manufacturing and producer service agglomerations on urban innovation based on a sample of 262 prefecture-level cities in China. We find some intriguing and new findings: (1) The threshold effect can be identified for the spillover effect of manufacturing agglomeration but not for that of producer service agglomeration. (2) Manufacturing and producer service agglomerations have opposite decomposition indirect effect. (3) The spatial spillover effect of industrial agglomeration can be restrained by absorptive capacity of nearby cities. This study not only provides empirical evidence for the reconciliation of the debate on the effect of manufacturing and producer service agglomeration, but also has important policy implication for reconsidering the role of industrial agglomeration in urban innovation.