The relationship between productive agglomeration and growth: the application of a multi-level model in the industrial sector of São Paulo State, Brazil

This study identified the agglomeration effect of firms classified in the same economic activity on the rate of growth of local employment. Data on all industrial firms located in State of São Paulo and included in the Government's Annual List of Social Information over a ten-year period (1996-2005) were collected. Some 263,020 observations on the number of jobs corresponding to 26,231 combinations of municipalities and 296 economic activities were analyzed. To identify the local economic agglomerations, two sets of criteria (Puga, 2003; Suzigan, Furtado, Garcia, & Sampaio, 2003) were used. A growth curve model, using a multilevel model was developed with the Hierarchical Linear Models [HLM] software. The results showed a positive relationship between agglomeration of firms in the same economic activity and employment growth. Considering the expected positive externalities due to agglomeration of similar firms in the same municipality, the results suggest that firms located in an agglomeration can have higher growth rates than their counterparts located outside the agglomeration. The results are interesting and relevant to the individual firm but also to the support of public policy regarding regional development at the municipal level. The findings support previous case studies, giving robustness to theory.