Discussion Papers

No.495 Agglomeration Effects of Informal Sector: Evidence from Cambodia

by Kiyoyasu TANAKA and Yoshihiro HASHIGUCHI

February 2015 (revised in May 2015)


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.

Keywords: Agglomeration, Informal Sector, Cambodia, Bayesian
JEL classification: C11, C21, C26, H26, O17, R12

PDF (2.95MB)

Supplementary materials

  • Tanaka, Kiyoyasu and Hashiguchi, Yoshihiro (2020) "Agglomeration economies in the formal and informal sectors: a Bayesian spatial approach." Journal of Economic Geography, 20(1): 37-66.
  • Data and programs
  • (24.1 MB)
  • Data and programs are used in the final manuscript published by Journal of Economic Geography.

Please note that discussion papers are works in various stages of progress and most have not been edited and proofread and may contain errors of fact or judgment. Revised versions of these papers may subsequently appear in more formal publication series. The views expressed in this publication are those of the author(s). The IDE does not guarantee the accuracy of the data included and accepts no responsibility for any consequences arising from its use.