Agglomeration Effects of Informal Sector: Evidence from Cambodia
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
- 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
- Tanaka_Hashiguchi_dataandprograms.zip (24.1 MB)
- Data and programs are used in the final manuscript published by Journal of Economic Geography.
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