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Firm productivity, wages, and agglomeration externalities

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  • Fafchamps, Marcel
  • Hamine, Said El

Abstract

Using detailed census data from Morocco, this paper investigates the existence of local externalities in manufacturing. In contrast to many other studies that focus on aggregate employment growth, we examine the effect of externalities on firm-level productivity and wages. Our empirical results show that agglomeration externalities occur through both productivity and wage effects. Returns to specialization are strong and large in magnitude. In accordance with the views of Marshall, Arrow and Romer, the net effect of competition on productivity and wages tends to be negative. Large firms facing no local competition have higher revenues and pay lower wages. We also find some limited evidence in favor of the diversity argument put forth by Jacobs.

Suggested Citation

  • Fafchamps, Marcel & Hamine, Said El, 2017. "Firm productivity, wages, and agglomeration externalities," Research in Economics, Elsevier, vol. 71(2), pages 291-305.
  • Handle: RePEc:eee:reecon:v:71:y:2017:i:2:p:291-305
    DOI: 10.1016/j.rie.2016.12.003
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    1. repec:eee:reecon:v:71:y:2017:i:2:p:282-290 is not listed on IDEAS
    2. repec:eee:reecon:v:71:y:2017:i:3:p:373-383 is not listed on IDEAS
    3. Marco Sanfilippo & Adnan Seric, 2016. "Spillovers from agglomerations and inward FDI: a multilevel analysis on sub-Saharan African firms," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 152(1), pages 147-176, February.
    4. Bigsten, Arne & Gebreeyesus, Mulu & Siba, Eyerusalem & Soderbom, Måns, 2012. "Enterprise Agglomeration, Output Prices, and Physical Productivity: Firm-Level Evidence from Ethiopia," WIDER Working Paper Series 085, World Institute for Development Economic Research (UNU-WIDER).

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