Proximity without Productivity : Agglomeration Effects with Plant-Level Output and Price Data
Recent literature suggests that the positive impact of population density on wages, the canonical measure of agglomeration effects, is multiples higher in developing countries than in advanced economies. This poses an urban productivity puzzle beca...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2022
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/647331647886638218/Proximity-without-Productivity-Agglomeration-Effects-with-Plant-Level-Output-and-Price-Data http://hdl.handle.net/10986/37199 |
| Summary: | Recent literature suggests that the
positive impact of population density on wages, the
canonical measure of agglomeration effects, is multiples
higher in developing countries than in advanced economies.
This poses an urban productivity puzzle because
on-the-ground observations do not suggest that cities in
developing countries function especially well or are
conducive to enhanced productivity. This paper uses
manufacturing censuses from four countries at differing
levels of income that allow separating plant output quantity
from prices. It shows that higher wage elasticities with
respect to density are due to higher marginal costs, and
agglomeration elasticities of efficiency, physical total
factor productivity, are in fact far lower in developing
countries. Further, congestion costs decrease with country
income. Both are consistent with often low rates of
structural transformation that make cities in developing
countries so-called “sterile agglomerations,” which are
populous but not efficient. |
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