How can China's circular economy be improved in consequence of industrial agglomeration choosing? Analysis from the perspective of factor augmenting technologies

Owing to circular economy has not achieved maximum industrial compatibility and lacks sufficient resource support from appropriate industrial patterns, resulting in its development in industry being trapped in a dilemma. To explore the relation between industrial agglomerations, factor misallocations, and circular economy, this study collects a dataset that includes 268 cities, 38 industrial sectors, and 5653 city-industry units to identify the causal relation. The empirical results indicate that distinct industrial agglomeration patterns have different impacts on circular economy through the conduction mechanisms of factor misallocations. These impacts have heterogeneous performances in different city types, city sizes, and industry types. Meanwhile, these results suggest that governments should develop appropriate agglomeration patterns and optimize factor allocation based on local comparative advantages, which facilitates the long-term and effective development of circular economy.