Marshallian Sources of Relatedness and Their Effects on Firm Survival and Subsequent Success in China

Relying on a large panel of Chinese firms, this article attempts to investigate the effects of technological relatedness on firm survival and subsequent success (e.g., profits and productivity). The results show that related establishments that colocate together outperform their counterparts located elsewhere, although it is not clear whether these findings are due to the presence of externalities or alternative explanations. To explore this issue, several proxies for the Marshallian sources of relatedness are further developed to better reveal the underlying mechanisms that drive relatedness. The findings show that technological proximity helps to respectively reduce the costs of moving goods, people, and ideas, thus providing strong support for Marshallian theories of agglomeration. The ownership structure of the firm matters, however. Specifically, wholly privately owned enterprises are more successful than firms where the state is a minority shareholder at converting technologically related spillovers into higher profits and higher-efficiency gains.