Export Induced Spatial Divergence

How does export liberalization affect firm location choice and the spatial concentration of economic activity? We address these questions using the geo-coordinates of Chinese manufacturing firms and find that export widens inter-city and intra-city spatial disparities by reinforcing initially large industry centers. We first show that there has been an increased spatial concentration across cities in response to improved foreign market access. Only industry city pairs that were large initially increase their employment density following trade liberalization. Second, there has also been an increased spatial concentration within cities. For a given industry, districts closer to city centers are getting denser, mainly driven by the extensive margin. Third, the above effects are not exclusive to industries directly exposed to export shocks but also spill over positively to upstream and downstream industries and negatively to industries competing for the same workers locally.