Cities and productivity: Evidence from 16 Latin American and Caribbean countries

Abstract

This paper explores the roles of agglomeration economies and human capital externalities in accounting for productivity variations across sub-national areas in 16 Latin American and Caribbean countries. We estimate positive elasticities of productivity with respect to density. While heterogeneity exists across countries, the estimated agglomeration elasticities for the region are comparable to those estimated in the literature for high-income countries. Including human capital measures reduces the estimated agglomeration elasticities for several countries in our sample. We also find that human capital externalities play a stronger role in explaining spatial productivity differentials than agglomeration economies in the region. By providing comparable estimates of the strength of agglomeration economies and human capital externalities for many non-high-income countries, the paper considerably expands knowledge on the determinants of urban productivity.