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

Kiyoyasu Tanaka () and Yoshihiro Hashiguchi

No 666, IDE Discussion Papers from Institute of Developing Economies, Japan External Trade Organization(JETRO)

Abstract: This paper 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 17% through spatial multiplier linkages, leading to a 26% increase in total. A spatial network magnifies the local impact of agglomeration economies in the informal sector.

Keywords: Cambodia; Industry; Informal sector; Productivity; Agglomeration economies; Bayes (search for similar items in EconPapers)
JEL-codes: C11 C21 C26 H26 O17 R12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eff, nep-geo, nep-iue, nep-sea and nep-ure
Date: 2017-05
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Published in IDE Discussion Paper = IDE Discussion Paper , No. 666. 2017-05

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