Urban producer service functions and geographical distance in chinese city clusters: A perspective from network externalities

Producer service, as one of the important urban functions, reflects the urban ability to serve other cities in the networked urban system. Correspondingly, the urban producer service functions can be influenced by the relationships, particularly distance between these cities. Previous research paid little attention to the role which distance between cities plays in network externalities, and focused more on the positive effects of network externalities stemming from synergy, which derives from cooperation between cities, while neglecting the negative ones caused by intercity market competition. To further explore the relationship between urban functions, geographical distance and network externalities, this paper builds a theoretical city- cluster model with core- periphery spatial structure. This model hypothesizes that the impact of network externalities on the producer service functions depends on the tradeoff between synergy effect and competition effect, which are closely related to the spatial relationships, or distances, between cities. Employing data of 12 city clusters in China from 2013 to 2016, and applying the employment ratio of the producer service sector to the manufacturing sector to measure the intensity of urban producer service functions, we examine the effects of geographical distance on urban producer service functions. The results reveal that: (1) the intensity of urban producer service functions increases with distance from the core city. In addition, internet penetration rate and transportation network centrality significantly reinforce this effect. (2) The mechanism is based on the difference in sensitivity to geographical distance between the competition effect and synergy effect. Seemingly, the competition effect decays more quickly with distance than the synergy effect. Thus producer service functions of the cities which are close to the core city tend to suffer the "agglomeration shadow" effect resulted from competition, while producer service functions of the cities which are further away tend to benefit from the synergy effect. The findings of this paper demonstrate that in the context of urban networks, geographical distance (urban location) still plays an essential role in the regional labor division. It also provides important insights for the promotion of the urban functional specialization and regional integration within city clusters. Cities near the core city could choose to actively undertake complementary functions of the core city; conversely, carrying out synergetic functions with the core city is a better choice for cities far away from the core city.