Do Clusters Influence Productivity in China’s Software Industry?

Abstract

Based on data from 2007 to 2011 across 29 provinces in China, this paper employs a panel-based econometric model to investigate the impact of clusters (of firms and educational institutions) and R & D investment in driving productivity in China’s software industry. In respect of clusters, our results show that a one percent increase in the density of firm clusters leads to a 0.10 percent increase in productivity; for clusters of educational institutions, a significantly positive impact on productivity in coastal regions has been identified. In terms of R & D investment, a one percent increase in R & D expenditure per R & D worker leads to a 0.22 percent increase in productivity, although the effect is significantly reduced in coastal region. For policymakers, the results of this study shed light on the effectiveness of different levers in narrowing regional productivity gaps. It can also help business leaders make better decisions regarding their innovation activities.