Does spatial functional division in urban agglomerations reduce negative externalities in large cities? Evidence from urban agglomerations in China.

The spatial unit of urban agglomerations is extremely important for reducing negative externalities in large cities. Although there is a large body of literature on reducing negative externalities within a single city, few studies have focused on the important role of urban agglomerations. To offer a new method for reducing negative externalities in large cities and fill in this gap in the literature, our paper examines the effect of spatial functional division in urban agglomerations on negative externalities in large cities by applying the concept of spatial functional division to data on 19 urban agglomerations and data on negative externalities from 35 large cities in China. We first show that spatial functional division in urban agglomerations can significantly reduce negative externalities. The robustness of the results was confirmed using the instrumental variable approach, alternative indicators, and other robustness checks. Furthermore, we identified the productivity improvement mechanisms in large cities that generate the observed mitigatory effects of spatial functional division in urban agglomerations on negative externalities in large cities. The heterogeneous analyzes indicate that spatial functional division in urban agglomerations has a stronger mitigatory effect on negative externalities in large cities in the context of higher inter-city connectivity, greater polycentricity, and official approval regarding urban agglomerations' regional planning. Our findings emphasize the importance of urban agglomerations for reducing negative externalities in large cities, particularly in China, where urban agglomerations have been rapidly developing and spatial functional division in urban agglomerations has been continuously improving.