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What drives the spatial wage premium for formal and informal workers? The case of Ecuador

Alessia Matano (), Moisés Obaco () and Vicente Royuela ()
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Moisés Obaco: AQR-IREA, University of Barcelona,

No 201806, AQR Working Papers from University of Barcelona, Regional Quantitative Analysis Group

Abstract: This article investigates the incidence of agglomeration externalities in a typical developing country, Ecuador. In particular, we analyze the role of the informal sector within these relations, since informal employment accounts for a significant part of total employment in the developing countries. Using individual level data and instrumental variable techniques, we investigate the impact of spatial externalities, in terms of population size and local specialization, on the wages of workers in Ecuadorian cities. The results show that spatial externalities matter also for a typical developing country, especially as far as urbanization externalities are concerned. Moreover, analysis of the interaction between spatial externalities and the informal economy shows a general penalization for informal workers in terms of benefits arising from agglomeration externalities. Finally, by investigating the possible channels behind the heterogeneity found in spatial agglomeration gains between formal and informal workers, we show that the advantages from agglomeration for formal workers may well be accounted for by positive sorting and better gains from job changes, while for informal workers they arise from positive learning externalities.

Keywords: Agglomeration Externalities; Developing Economies; Informal Employment; Workers’ Wages; FUAs; Ecuador. JEL classification: J31, J46, R23, R12 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2018-06, Revised 2018-06
New Economics Papers: this item is included in nep-geo, nep-iue, nep-knm, nep-lma and nep-ure
References: View references in EconPapers View complete reference list from CitEc
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