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


  • Tanaka, Kiyoyasu
  • Hashiguchi, Yoshihiro


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.

Suggested Citation

  • Tanaka, Kiyoyasu & Hashiguchi, Yoshihiro, 2017. "Agglomeration economies in the formal and informal sectors : a Bayesian spatial approach," IDE Discussion Papers 666, Institute of Developing Economies, Japan External Trade Organization(JETRO).
  • Handle: RePEc:jet:dpaper:dpaper666

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    References listed on IDEAS

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    More about this item


    Cambodia; Industry; Informal sector; Productivity; Agglomeration economies; Bayes;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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