Noah Smith explains how density boosts China's economy:
Despite our wealth, our technology, and our industrial history, America is not a very densely populated place. That means that if you had to pick America or China to be either the world's factory or the world's farm … well, China would be Manhattan and America would be upstate New York. It's not that stark, of course, but look at countries that have plenty of land and resources and few people–Russia or Argentina comes to mind–they don't seem to be doing a lot of high value-added manufacturing or services.
If we want to be the world's factory fifty years from now, one important thing we can do is to welcome large numbers of immigrants (especially high-skilled immigrants) into our country. We should also focus on policies to promote greater urbanization within our country: walkable neighborhoods, high-rise housing, and light rail would accommodate those new immigrants much easier than sprawling exurbs and traffic-choked commuter freeways. These are things we should and could be doing independently of trade policy, innovation, etc.
The Dish 