Agglomeration economies in the formal and informal sectors: a Bayesian spatial approach

Abstract This article examines whether localized clusters of similar industries produce agglomeration economies in the formal and informal sectors. We develop a Bayesian method to estimate a spatial autoregressive model with an endogenous independent variable. We use establishment-level census data...

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Bibliographic Details
Published in:Journal of economic geography 2020-01, Vol.20 (1), p.37-66
Main Authors: Tanaka, Kiyoyasu, Hashiguchi, Yoshihiro
Format: Article
Language:English
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Summary:Abstract This article examines whether localized clusters of similar industries produce agglomeration economies in the formal and informal sectors. We develop a Bayesian method to estimate a spatial autoregressive model with an endogenous independent variable. We use establishment-level census data that cover both formal registered and informal unregistered establishments in Cambodia. We find that the density of local employment has a significantly positive effect on productivity in the informal sector, but little effect in the formal sector. For manufacturing, a doubling of employment density increases productivity in the informal sector by 9% through local linkages and by 19% through spatial multiplier linkages, leading to a 28% increase in total. A spatial network magnifies the local impact of agglomeration economies in the informal sector.
ISSN:1468-2702
1468-2710
DOI:10.1093/jeg/lby069