Agglomeration and informality: Evidence from Peruvian establishments. (21st December 2020)

• Record Type: Journal Article
• Authors: Bernedo Del Carpio, Maria; Patrick, Carlianne
• Is Part Of: Journal of regional science. Volume 61:Number 2(2021)
• Page Start: 442
• Page End: 471
• Publication Date: 2020-12-21
• Subjects: agglomeration -- development -- informality -- input–output linkages -- labor pooling -- productivity; Economics -- Research -- Periodicals; Regional planning -- Periodicals; 330.072
• DOI: 10.1111/jors.12515
• Languages: English
• ISSNs: 0022-4146

Abstract

Abstract: This paper contributes to the emerging literature investigating agglomeration externalities in developing countries and focuses on the less studied differences between the formal and the informal sector. Using establishment‐level data and instrumental variable estimations, we find that both formal and informal establishments benefit from agglomeration externalities. We provide evidence that informal establishment total factor productivity (TFP) increases more with city size than formal establishment TFP. We also provide causal evidence on the source of agglomeration externalities by formality status by examining industry coagglomeration pairs and instrumenting with data on Columbian input–output and labor industry–pair relationships. We find little evidence of benefits from stronger input–output relationships at the city level, but substantial benefits associated with shared labor.