Agglomeration effects of informal sector: evidence from Cambodia

Kiyoyasu Tanaka and Yoshihiro Hashiguchi

No 495, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: The presence of a large informal sector in developing economies poses the question of whether informal activity produces agglomeration externalities. This paper uses data on all the nonfarm establishments and enterprises in Cambodia to estimate the impact of informal agglomeration on the regional economic performance of formal and informal firms. We develop a Bayesian approach for a spatial autoregressive model with an endogenous explanatory variable to address endogeneity and spatial dependence. We find a significantly positive effect of informal agglomeration, where informal firms gain more strongly than formal firms. Calculating the spatial marginal effects of increased agglomeration, we demonstrate that more accessible regions are more likely than less accessible regions to benefit strongly from informal agglomeration.

Keywords: Cambodia; Informal sector; Economic conditions; Agglomeration; Bayesian (search for similar items in EconPapers)
JEL-codes: C11 C21 C26 H26 O17 R12 (search for similar items in EconPapers)
Date: 2015-02-01
New Economics Papers: this item is included in nep-cse, nep-geo, nep-iue, nep-sea and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in IDE Discussion Paper = IDE Discussion Paper, No. 495. 2015-02-01

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