Agglomeration economies in Vietnam: A firm-level analysis

Discussion Papers

No.636

by Toshitaka GOKAN, Ikuo KUROIWA and Kentaro NAKAJIMA

March 2017

ABSTRACT

This paper examines the effects of agglomeration economies on firm‐level productivity in Vietnam. By using Vietnamese firm‐level data and the cluster detection method proposed by Mori and Smith (2013), we estimate the agglomeration economies for firm‐level productivity. Specifically, we consider the different effects of agglomeration economies for localization and urbanization, as well as across types of firms; state‐owned, private, and foreign‐owned firms. Furthermore, we decompose the agglomeration economies into the three sources of the effect; inter‐industry transaction relationships, knowledge spillovers, and labor pooling. We find the following results. First, localization economies actually improve firm‐level productivity in Vietnam, with firms in the clustered areas having higher productivities. However, the localization economies do not improve the productivity of the state‐owned firms. Second, urbanization economies improve productivity only for foreign‐owned firms. State‐owned and private firms do not benefit from urbanization economies. From the decomposition of agglomeration economies, we find that agglomeration economies formed through transactions work only for private firms. On the other hand, agglomeration economies formed through knowledge spillovers and labor pooling work for foreign‐owned firms.

Keywords: Agglomeration Economies; Economic Geography
JEL classification: R12

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