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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, Av. Diagonal 690 (08034), Barcelona, Spain.

No 201813, IREA Working Papers from University of Barcelona, Research Institute of Applied Economics

Abstract: This article investigates the incidence of agglomeration externalities in Ecuador, a small-sized, middle-income developing country. 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 small developing country. Moreover, analysis of the interaction between spatial externalities and informality shows a general penalization for workers employed in the informal sector 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)
New Economics Papers: this item is included in nep-geo, nep-iue, nep-lma and nep-ure
Date: 2018-06, Revised 2018-06
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