We evaluate the role that cities play on individual productivity in China. First, we
show that location explains a large share of nominal wage disparities. Second, even after
controlling for individual and firms characteristics and instrumenting city characteristics,
the estimated elasticity of wage with respect to employment density is about three times
larger than in Western countries. Land area and industrial specialisation also play a significant
role whereas the access to external markets does not. Therefore, large agglomeration
economies prevail in China and they are more localised than in Western countries. Third,
we find evidence of a large positive impact of the local share of migrants on local workers’
wages. Overall, these results strongly support the productivity gains that can be expected
from further migration and urbanisation in China.