Exploring the reasons for the enterprises’ total factor productivity decline is of vital importance to the revival of shrinking cities’ economies and the coordinated development of the regional economy. This paper constructs a model to identify the reasons behind the enterprises’ productivity changes between time points in the same regions. Applying with micro data, this paper examines the roles that agglomeration effect, heterogeneity of agglomeration effect and selection effect play in the enterprises’ total factor productivity decline of China’s shrinking cities between 2000 and 2010. The findings show that, the total factor productivity of enterprises in China’s shrinking cities faced both the enhancement of the agglomeration effect (in which more efficient enterprises benefit more) and the weakening of the selection effect. Moreover, compared with non-state-owned enterprises, non-high-tech industrial enterprises and enterprises in cities with low shrinkage, the state-owned enterprises, high-tech industrial enterprises and enterprises in cities with high shrinkage have gained more total factor productivity improvement from the agglomeration effect, but they also provided more opportunities for inefficient enterprises to survive.