The urban productivity not only determine with the traditional inputs such as the physical capital, human capital and labour but also the density and agglomeration of output and labour could determine part of urban productivity. This study attempts to highlight the role of spatial agglomeration on urban productivity in Zhejiang, China. For measuring the effect of agglomeration on economic performance, we use the employment as a proxy of productivity and its effect of agglomeration. The data of 11 major cities of Zhejiang province from 1999 to 2008 were chosen to estimate regressions for the aim of this study. The results show that part of the growth of urban productivity in Zhejiang could be induced by the growth of output and labour density. Hence, agglomeration is an important type of externality mechanism in determining the urban economic performance.