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ABSTRACT

The clustering of economic activity is believed to generate both positive own-industry (localization) spillovers and negative competitive pressures. Using data on manufacturing enterprises operating in China during 1998–2006, this paper provides evidence on the net effect of opposing spillovers from nearby economic activity. Central to the analysis is the opportunity to distinguish local manufacturing enterprises by state, private, or foreign ownership. Systematic differences in average productivity of these firms enable inferences about differences in the strength of spillovers from one type of firm to another type. Results indicate that spillovers are larger within the same ownership type than they are across them, consistent with localization economies that operate within segmented channels of influence.