City Network Externalities and Innovation Disparities in China: Revisit the Role of ‘Scale’, ‘Location’ and ‘Relationship’ in Urban Innovation Capacity

There is an lack of empirical evidence that city network externalities reduce regional innovation disparities and thereby become an important factor in promoting coordinated regional economic development. This paper uses the macro- and microlevel panel data of 289 prefecture-level cities in China to illustrates that the rise in city network centralities has assisted many small and medium-sized “enclave-type” cities in achieving innovation development. The impact of city network externalities on regional innovation inequalities is then empirically examined in this research by using estimate techniques such as instrumental variables, threshold regression and spatial econometric models. The results demonstrate that (1) city network externalities aid regional innovation development in achieving conditional convergence and that this conditional convergence is more pronounced in city clusters; and (2) further mechanism analysis reveals that the driving forces behind innovation convergence between small (enclave) cities and large (central) cities are ‘borrowed-size’ behaviour, network spillovers, and the improvement of ‘competition-collaboration’ relationships in the city network. Considering this, creating an cooperative innovation community that involves broad consultation, shared contributions, and mutual benefits is another workable solution for promoting innovation development throughout the entire region as opposed to only the growth of core cities.