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Agglomeration effects of informal sector: evidence from Cambodia

Listed author(s):
  • Tanaka, Kiyoyasu
  • Hashiguchi, Yoshihiro

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.

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Paper provided by Institute of Developing Economies, Japan External Trade Organization(JETRO) in its series IDE Discussion Papers with number 495.

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Date of creation: 01 Feb 2015
Publication status: Published in IDE Discussion Paper = IDE Discussion Paper, No. 495. 2015-02-01
Handle: RePEc:jet:dpaper:dpaper495
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