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We rerun the above exercise using another proxy for city capacity: total tax collection as a proportion of city GDP. We find similar results in that only cities with both the scope and capacity to carry out their additional remit are able to help firms grow and increase employee wages (Table 14).

Table 14. 
Firm-Level Outcomes of City Upgrading and City Capacity for Incumbents Using an Alternative Measure of Capacity
Incumbent FirmsLog Main Operating RevenuesLog Main Operating CostLog Main Operating ProfitLog Number of EmployeesLog Labor VocationalLog Wage per EmployeeLog Export
City −0.606** −0.560* −0.642*** −0.457** −0.496 −0.340*** −0.734 
 (0.301) (0.306) (0.234) (0.228) (0.302) (0.114) (0.530) 
Capacity −0.00236 −0.00171 0.00730 0.00318 −0.00427 0.000172 −0.0136 
 (0.00674) (0.00672) (0.00841) (0.00387) (0.00519) (0.00173) (0.00899) 
City × 16.22* 14.70 16.29** 9.629 12.46 9.621*** 16.91 
Capacity (8.977) (9.032) (7.336) (6.678) (8.363) (3.185) (16.13) 
Constant 11.07*** 10.64*** 9.474*** 6.081*** 2.779*** 8.356*** 8.822*** 
 (0.682) (0.658) (0.776) (0.201) (0.190) (0.504) (0.917) 
Observations 32,517 32,428 21,283 18,193 3,892 17,496 4,759 
R2 0.325 0.330 0.225 0.240 0.218 0.252 0.180 
Block FE Yes Yes Yes Yes Yes Yes Yes 
Industry × Yes Yes Yes Yes Yes Yes Yes 
Year FE 
Province FE Yes Yes Yes Yes Yes Yes Yes 
Incumbent FirmsLog Main Operating RevenuesLog Main Operating CostLog Main Operating ProfitLog Number of EmployeesLog Labor VocationalLog Wage per EmployeeLog Export
City −0.606** −0.560* −0.642*** −0.457** −0.496 −0.340*** −0.734 
 (0.301) (0.306) (0.234) (0.228) (0.302) (0.114) (0.530) 
Capacity −0.00236 −0.00171 0.00730 0.00318 −0.00427 0.000172 −0.0136 
 (0.00674) (0.00672) (0.00841) (0.00387) (0.00519) (0.00173) (0.00899) 
City × 16.22* 14.70 16.29** 9.629 12.46 9.621*** 16.91 
Capacity (8.977) (9.032) (7.336) (6.678) (8.363) (3.185) (16.13) 
Constant 11.07*** 10.64*** 9.474*** 6.081*** 2.779*** 8.356*** 8.822*** 
 (0.682) (0.658) (0.776) (0.201) (0.190) (0.504) (0.917) 
Observations 32,517 32,428 21,283 18,193 3,892 17,496 4,759 
R2 0.325 0.330 0.225 0.240 0.218 0.252 0.180 
Block FE Yes Yes Yes Yes Yes Yes Yes 
Industry × Yes Yes Yes Yes Yes Yes Yes 
Year FE 
Province FE Yes Yes Yes Yes Yes Yes Yes 

FE = fixed effects.

Notes:

1. ***, **, and * denote significance at the 1%, 5%, and 10% level, respectively.

2. Standard errors are in parentheses and clustered at county level.

3. Analysis is restricted to firms opened before 1997.

4. Vocational labor data are only available in 2004.

Source: Authors’ calculations.

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