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Firm Productivity and Agglomeration Economies: Evidence from Egyptian Data

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  • Karim Badr

    () (World Bank)

  • Reham Rizk
  • Chahir Zaki

Abstract

This paper attempts to shed light on the nexus between firm productivity and economies of agglomeration in Egypt. Using a large dataset of 62,108 firms in 342 four-digit activities in 27 regions governorates, we introduce three measures of agglomeration, which are urbanization or firm diversification, measured by the number of firms in the governorate, localization and specialization, measured by the average productivity in the governorate and sector (generating externalities and knowledge spillovers), and finally competition, measured by the number of firm operating in the same governorate and the same sector. We find strong evidence for the existence of agglomeration economies in Egypt after controlling for firm age, location, economic activity and legal status. In the Egyptian context, productivity spillovers gained from agglomeration economies outweighed the negative effects of congestion implied by our competition measure. The latter is chiefly due to the lack of good infrastructure. When regressions are run by firm size and activity, our main findings show, first, that micro and small firms are more likely to benefit from localization and diversification compared to medium and large firms. Finally, service firms benefit more from a high level of diversification, while manufacturing firms gain more from knowledge spillovers and specialization. Our results support promoting entrepreneurship through the creation of industrial clusters located outside Cairo to lessen disparities between regions and acquire the full advantages of agglomeration.

Suggested Citation

  • Karim Badr & Reham Rizk & Chahir Zaki, 2018. "Firm Productivity and Agglomeration Economies: Evidence from Egyptian Data," Working Papers 1239, Economic Research Forum, revised 15 Oct 2018.
  • Handle: RePEc:erg:wpaper:1239
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    References listed on IDEAS

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    1. Ehrl, Philipp, 2013. "Agglomeration economies with consistent productivity estimates," Regional Science and Urban Economics, Elsevier, vol. 43(5), pages 751-763.
    2. Duranton, Gilles & Puga, Diego, 2004. "Micro-foundations of urban agglomeration economies," Handbook of Regional and Urban Economics, in: J. V. Henderson & J. F. Thisse (ed.), Handbook of Regional and Urban Economics, edition 1, volume 4, chapter 48, pages 2063-2117, Elsevier.
    3. Michael Greenstone & Richard Hornbeck & Enrico Moretti, 2010. "Identifying Agglomeration Spillovers: Evidence from Winners and Losers of Large Plant Openings," Journal of Political Economy, University of Chicago Press, vol. 118(3), pages 536-598, June.
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    5. Marc Schiffbauer & Sandra Ospina, 2010. "Competition and Firm Productivity; Evidence from Firm-Level Data," IMF Working Papers 10/67, International Monetary Fund.
    6. Howard, Emma & Newman, Carol & Rand, John & Tarp, Finn, 2014. "Productivity-enhancing manufacturing clusters: Evidence from Vietnam," WIDER Working Paper Series 071, World Institute for Development Economic Research (UNU-WIDER).
    7. Henderson, Vernon, 1997. "Externalities and Industrial Development," Journal of Urban Economics, Elsevier, vol. 42(3), pages 449-470, November.
    8. Stefan P.T. Groot & Henri L.F. Groot & Martijn J. Smit, 2014. "Regional Wage Differences In The Netherlands: Micro Evidence On Agglomeration Externalities," Journal of Regional Science, Wiley Blackwell, vol. 54(3), pages 503-523, June.
    9. Hu, Cui & Xu, Zhaoyuan & Yashiro, Naomitsu, 2015. "Agglomeration and productivity in China: Firm level evidence," China Economic Review, Elsevier, vol. 33(C), pages 50-66.
    10. Rizov, Marian & Oskam, Arie & Walsh, Paul, 2012. "Is there a limit to agglomeration? Evidence from productivity of Dutch firms," Regional Science and Urban Economics, Elsevier, vol. 42(4), pages 595-606.
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