Agglomeration Economies: An Analysis of the Determinants of Employment in the Cities of Ecuador

Río-Rama Río-Rama,Torres-Gutiérrez Torres-Gutiérrez,Álvarez-García Álvarez-García,Correa-Quezada Correa-Quezada

doi:10.3390/sym11111421

Río-Rama Río-Rama, Torres-Gutiérrez Torres-Gutiérrez + Show 2 more

Open Access

https://doi.org/10.3390/sym11111421

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Abstract

The objective of this investigation is to study the role of agglomeration economies (manufacturing) in urban employment growth, as a proxy for economic growth, between 1980 and 2010 in Ecuador. The three measures of agglomeration-specialization, diversity, and density-are tested to determine their eﬀect on employment growth in industries. The empirical analysis is based on firm- and city-level data from manufacturing activities. A model is proposed to estimate the effect of agglomeration economies on the growth of employment and a regression is conducted using instrumental variables. In particular, the two-stage least squares (2SLS) estimator is used. We conclude that localization economies measured by a specialization index have a positive impact on the growth of employment in the period analyzed. The results are similar to those obtained by other work carried out both in developed and developing countries.

Highlights

There is a broad consensus in the literature about the importance of agglomeration economies for productivity and economic growth [9,10,11,12,13,14,15,16,17,18,19]
The localization economies measured by the specialization index and the density of employment explain the decrease in employment between 1980 and 2010, while the urbanization economies measured by the diversity index explain employment growth positively
This research examined the effects of agglomeration economies on the growth of urban employment in the secondary sector in Ecuador between 1980 and 2010

Summary

Introduction

The growing concentrations of people and production in space has been one of the characteristics of economic growth in recent decades, the renewed academic interest in urban phenomena.Populations and companies tend to prefer being located in places where physical proximity with other people and firms presents significant benefits, which are known as economies of agglomeration [1,2,3,4,5,6,7].This concept goes back to Marshall [8], who observed that the location of firms in areas with a high concentration of firms in the same sector brought advantages, such as the availability of skilled labor, the availability of intermediate goods, and the ease of exchanging knowledge about products, processes, and innovations.There is a broad consensus in the literature about the importance of agglomeration economies for productivity and economic growth [9,10,11,12,13,14,15,16,17,18,19]. Populations and companies tend to prefer being located in places where physical proximity with other people and firms presents significant benefits, which are known as economies of agglomeration [1,2,3,4,5,6,7] This concept goes back to Marshall [8], who observed that the location of firms in areas with a high concentration of firms in the same sector brought advantages, such as the availability of skilled labor, the availability of intermediate goods, and the ease of exchanging knowledge about products, processes, and innovations. These cities, according to the World Bank [20], are home to 54% of the world’s population and generate more than 80% of the world’s gross domestic product, which poses enormous challenges for cities, given that when the agglomeration economies emerge, spatial inequalities emerge

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