Conditional Agglomeration in China’s Northeast Rust Belt: Density, Structural Orientation, and Ownership-Mixing Entropy

Northeast China’s rust-belt cities have faced persistent concerns about stagnating labor productivity amid structural change. This paper studies how urban agglomeration benefits depend on local economic structure and ownership composition using an annual city-level panel. We estimate two-way fixed-effects models with city and year effects and city-clustered standard errors, complemented by dynamic specifications that account for productivity persistence. Results show a robust positive within-city association between population density and labor productivity. This density premium is structure-conditioned: the productivity payoff to density is significantly larger in city-years that are more industry-oriented. In contrast, an information-theoretic measure of sectoral imbalance (KL divergence from an industry–services balance benchmark) adds limited explanatory power once fixed effects, structural orientation, and controls are included, suggesting that directional orientation matters more than balance per se in this two-sector setting. Ownership composition is also informative. While SOE and private employment shares correlate with labor productivity in the fixed-effects models, the strongest and most stable finding emerges from ownership-mixing entropy: binary SOE–private employment entropy is positively associated with labor productivity in dynamic specifications, with meaningful heterogeneity across provinces. Overall, the evidence supports a conditional agglomeration view in which productivity dynamics in Northeast China reflect the interaction of density, structural orientation, and ownership complexity. The results highlight the importance of aligning urbanization with higher-value structural transformation and improving the institutional environment that enables productive SOE–private coexistence.