Publication: Heterogeneous Agglomeration Economies in the Developing Countries: The Roles of Firm Characteristics, Sector Tradability, and Urban Mobility
Loading...
Date
2022-03-07
ISSN
Published
2022-03-07
Author(s)
Editor(s)
Abstract
Using geo-coded, firm-level data on more than 51,000 establishments in 649 metropolitan areas in 98 developing economies, from the World Bank’s Enterprise Surveys and a new global database on city-level mobility and congestion, this paper estimates the “pure” firm productivity gains of urban density, net of negative externalities associated with limited mobility, crime, and pollution. The results suggest that the average size of agglomeration economies in the developing world is comparable to the one observed in advanced countries, but the magnitude of the benefits of density on firm productivity substantially varies across firms. Returns to urban density are higher for firms operating in the tradables sector, exporters, foreign-owned firms, larger firms, and more experienced firms. Agglomeration economies are lost through both limited uncongested mobility and congestion, but the latter has a stronger negative effect on agglomeration economies and reduces relatively more the agglomeration benefits of firms in the non-tradables sector than those producing tradables.
Link to Data Set
Citation
“Burger, Martijn; Ianchovichina, Elena; Akbar, Prottoy Aman. 2022. Heterogeneous Agglomeration Economies in the Developing Countries: The Roles of Firm Characteristics, Sector Tradability, and Urban Mobility. Policy Research Working Paper; 9954. © World Bank. http://hdl.handle.net/10986/37107 License: CC BY 3.0 IGO.”
Associated URLs
Associated content
Other publications in this report series
Publication The Future of Poverty(Washington, DC: World Bank, 2025-07-15)Climate change is increasingly acknowledged as a critical issue with far-reaching socioeconomic implications that extend well beyond environmental concerns. Among the most pressing challenges is its impact on global poverty. This paper projects the potential impacts of unmitigated climate change on global poverty rates between 2023 and 2050. Building on a study that provided a detailed analysis of how temperature changes affect economic productivity, this paper integrates those findings with binned data from 217 countries, sourced from the World Bank’s Poverty and Inequality Platform. By simulating poverty rates and the number of poor under two climate change scenarios, the paper uncovers some alarming trends. One of the primary findings is that the number of people living in extreme poverty worldwide could be nearly doubled due to climate change. In all scenarios, Sub-Saharan Africa is projected to bear the brunt, contributing the largest number of poor people, with estimates ranging between 40.5 million and 73.5 million by 2050. Another significant finding is the disproportionate impact of inequality on poverty. Even small increases in inequality can lead to substantial rises in poverty levels. For instance, if every country’s Gini coefficient increases by just 1 percent between 2022 and 2050, an additional 8.8 million people could be pushed below the international poverty line by 2050. In a more extreme scenario, where every country’s Gini coefficient increases by 10 percent between 2022 and 2050, the number of people falling into poverty could rise by an additional 148.8 million relative to the baseline scenario. These findings underscore the urgent need for comprehensive climate policies that not only mitigate environmental impacts but also address socioeconomic vulnerabilities.Publication Central Bank Independence and Sovereign Borrowing(Washington, DC: World Bank, 2025-07-25)This paper studies the impact of central bank independence on sovereign borrowing, using an index that captures institutional constraints on central bank lending to the government across 155 countries from 1972 to 2023. The findings show that tighter lending to the executive significantly reduces sovereign interest rates and raises the debt-to-gross domestic product ratio in developing countries. These effects reflect the executive’s improved ability to borrow at lower costs under greater central bank independence. The results are robust to multiple tests, but there are no significant effects in advanced economies. From a policy perspective, the results highlight the key role of independent central banks as catalysts for reducing governments’ borrowing costs and enhancing the government’s borrowing capacity.Publication Disentangling the Key Economic Channels through Which Infrastructure Affects Jobs(Washington, DC: World Bank, 2025-04-03)This paper takes stock of the literature on infrastructure and jobs published since the early 2000s, using a conceptual framework to identify the key channels through which different types of infrastructure impact jobs. Where relevant, it highlights the different approaches and findings in the cases of energy, digital, and transport infrastructure. Overall, the literature review provides strong evidence of infrastructure’s positive impact on employment, particularly for women. In the case of electricity, this impact arises from freeing time that would otherwise be spent on household tasks. Similarly, digital infrastructure, particularly mobile phone coverage, has demonstrated positive labor market effects, often driven by private sector investments rather than large public expenditures, which are typically required for other large-scale infrastructure projects. The evidence on structural transformation is also positive, with some notable exceptions, such as studies that find no significant impact on structural transformation in rural India in the cases of electricity and roads. Even with better market connections, remote areas may continue to lack economic opportunities, due to the absence of agglomeration economies and complementary inputs such as human capital. Accordingly, reducing transport costs alone may not be sufficient to drive economic transformation in rural areas. The spatial dimension of transformation is particularly relevant for transport, both internationally—by enhancing trade integration—and within countries, where economic development tends to drive firms and jobs toward urban centers, benefitting from economies scale and network effects. Turning to organizational transformation, evidence on skill bias in developing countries is more mixed than in developed countries and may vary considerably by context. Further research, especially on the possible reasons explaining the differences between developed and developing economies, is needed.Publication Crowding Out and Banking Crises(Washington, DC: World Bank, 2025-07-22)This paper studies the effect of government issuance on firm issuance during banking crises using transaction-level bond and loan data from 66 countries between 1991 and 2017. Governments rarely issue loans, preferring to issue in bond markets. In contrast, firms receive most of their financing from banks. During banking crises, as the supply of domestic loans decreases, firms switch to issuing bonds in domestic markets. The paper uses a novel instrument based on maturing debt to overcome the potential endogeneity of government issuance. The findings show that firms must compete with the government for funds in the domestic bond market and are crowded out from this market as a result. This happens not only in developing countries, but in advanced countries as well. The paper also shows that firms with the ability to tap international debt markets switch to these markets when crowding out occurs in domestic bond markets. Lastly, the paper shows that more developed domestic bond markets mitigate, but do not eliminate, the degree to which crowding out occurs.Publication Designing and Analyzing Powerful Experiments(Washington, DC: World Bank, 2025-07-22)This paper offers practical advice on how to improve statistical power in randomized experiments through choices and actions researchers can take at the design, implementation, and analysis stages. At the design stage, the choice of estimand, choice of treatment, and decisions that affect the residual variance and intra-cluster correlation can all affect power for a given sample size. At the implementation stage, researchers can boost power through increasing compliance with treatment, reducing attrition, and improving outcome measurement. At the analysis stage, power can be increased through using different test statistics or estimands, through the choice of control variables, and through incorporating informative priors in a Bayesian analysis. A key message is that it does not make sense to talk of “the” power of an experiment. A study can be well-powered for one outcome or estimand, but not others, and a fixed sample size can yield very different levels of power depending on researcher decisions.
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Surges and Stops in FDI Flows to Developing Countries : Does the Mode of Entry Make a Difference?(World Bank, Washington, DC, 2014-02)This paper investigates the factors associated with foreign direct investment "surges" and "stops," defined as sharp increases and decreases, respectively, of gross foreign direct investment inflows to the developing world and differentiated based on whether these events are led by waves in greenfield investments or mergers and acquisitions. Greenfield-led surges and stops occur more frequently than mergers and acquisitions-led ones and different factors are associated with the onset of the two types of events. Global liquidity is the only factor significantly associated with a surge, regardless of its kind, while decline in global economic growth and a surge in the preceding year are the only predictors of a stop. Greenfield-led surges and stops are more likely in low-income and resource-rich countries than elsewhere. Global growth, financial openness, and domestic economic and financial instability enable mergers and acquisitions-led surges. These results differ from those in the literature on surges and stops and are particularly relevant in countries where foreign direct investments dominate capital flows.Publication MENA Economic and Development Prospects 2013 : Investing in Turbulent Times(World Bank, Washington, DC, 2013-11)The political and social upheavals that followed the Arab Spring of 2011 continue to dominate economic activity and near term prospects in the Middle East and North Africa (MENA). Although political transitions bring promises of greater political and economic freedom, in MENA the process remains far from complete and has been accompanied by increased political and macroeconomic instability in 2013. In Egypt, rising social and political tensions weighed heavily on confidence. In Syria, a marked escalation of the civil war exacted a heavy economic and human toll, with spillovers to neighboring Lebanon, Jordan, and Iraq. Oil production in developing MENA oil exporters has fallen because of security setbacks, infrastructure problems, strikes, and in the case of Iran, economic sanctions. The outlook for 2013-and more so for 2014, is uncertain and subject to a variety of risks, mostly domestic in nature and linked to political instability, while global economic conditions have become more favorable. In 2013, economic growth is expected to remain weak or weaken relative to 2012 across MENA and average 2.8 percent, down from the estimated 5.6 percent in 2012. Growth has been most volatile in the MENA's developing oil exporting countries, and is projected to slow down considerably due to unfavorable developments, especially in Libya, Iran, and Syria. Some aspects of instability, including the quality and stability of government institutions and policies, did play a role, but others, such as democratic accountability, did not. Furthermore, Foreign Trade Investment (FDI) flows to the resource intensive and non-tradable sectors appear immune to political instability, but FDI flows to the tradable sectors exhibit a clear negative response.Publication Risky Business : Political Instability and Greenfield Foreign Direct Investment in the Arab World(World Bank, Washington, DC, 2013-12)Which foreign direct investments are most affected by political instability? Analysis of quarterly greenfield investment flows into countries in the Middle East and North Africa from 2003 to 2012 shows that adverse political shocks are associated with significantly reduced investment inflows in the non-resource tradable sectors. By contrast, investments in natural resource sectors and non-tradable activities appear insensitive to such shocks. Consistent with these patterns, the significant reduction in investment inflows in Arab Spring affected economies was starkest in the non-resource manufacturing sector. Political instability is thus associated with increased reliance on non-tradables and aggravated resource dependence. Conversely, how intensified political instability affects aggregate foreign direct investment is critically contingent on the initial sector composition of these flows.Publication Unhappy Development(World Bank, Washington, DC, 2015-11)Despite progress in economic and social development in the 2000s, there was an increasing dissatisfaction with life among the population of many developing Arab countries. At the end of the decade, these countries ranked among the least happy economies in the world—a situation that fits the so-called “unhappy development” paradox. The paradox is defined as declining levels of happiness at a time of moderate-to-rapid economic development. This paper empirically tests the strength of association of a range of objective and subjective factors with life evaluation in the Middle East and North Africa region in the years immediately preceding the Arab Spring uprisings (2009–10). The findings suggest a significant, negative association between life satisfaction levels in the region during this period and each of the main perceived reasons for the 2011 uprisings—dissatisfaction with the standard of living, poor labor market conditions, and corruption.Publication Urbanization, Agglomeration, and Economic Development(World Bank, Washington, DC, 2008)This paper reviews the linkages between urbanization and economic development. It articulates the relationship between urban density and potential increases in productivity, through specialization, complementarities in production, through the diffusion of knowledge and mimicry, and simply through size and scale. The factors limiting the efficient sizes of cities are analyzed. The paper reviews empirical knowledge, from underdeveloped countries as well as high-income industrial societies, about the importance and magnitudes of these productivity gains. The analysis documents the close link between gains in economic efficiency and the urbanization of populations in most parts of the world.
Users also downloaded
Showing related downloaded files
Publication Unlocking the Power of Healthy Longevity(Washington, DC: World Bank, 2024-09-12)Noncommunicable diseases (NCDs) are among the major health and development challenges of our time. Every year, about 41 million people die due to NCDs. This makes up about 74 percent of all deaths globally, the majority of which are in low- and middle-income countries (LMICs). Countless more people live with NCDs every day. Yet, NCDs are largely treatable and preventable. The risk of developing NCDs and deaths from them can both be lowered with appropriate attention to prevention and treatment. However, weak health systems and limited access to affordable care and information, especially in LMICs, contribute to lapses in seeking and receiving appropriate and timely care. This compendium is a compilation of 18 chapters, each exploring a different but related topic in the nexus of NCDs, human capital, and productivity. It is based on a series of analytical work taken up by the World Bank to support the Healthy Longevity Initiative (HLI) - a collaborative effort between the World Bank, the University of Toronto, and key academic and development partners including the Harvard University and the University of Washington. The HLI presents one of a growing set of efforts to increase the urgency of policy response to NCDs across the world.Publication World Development Report 2017(Washington, DC: World Bank, 2017-01-30)Why are carefully designed, sensible policies too often not adopted or implemented? When they are, why do they often fail to generate development outcomes such as security, growth, and equity? And why do some bad policies endure? This book addresses these fundamental questions, which are at the heart of development. Policy making and policy implementation do not occur in a vacuum. Rather, they take place in complex political and social settings, in which individuals and groups with unequal power interact within changing rules as they pursue conflicting interests. The process of these interactions is what this Report calls governance, and the space in which these interactions take place, the policy arena. The capacity of actors to commit and their willingness to cooperate and coordinate to achieve socially desirable goals are what matter for effectiveness. However, who bargains, who is excluded, and what barriers block entry to the policy arena determine the selection and implementation of policies and, consequently, their impact on development outcomes. Exclusion, capture, and clientelism are manifestations of power asymmetries that lead to failures to achieve security, growth, and equity. The distribution of power in society is partly determined by history. Yet, there is room for positive change. This Report reveals that governance can mitigate, even overcome, power asymmetries to bring about more effective policy interventions that achieve sustainable improvements in security, growth, and equity. This happens by shifting the incentives of those with power, reshaping their preferences in favor of good outcomes, and taking into account the interests of previously excluded participants. These changes can come about through bargains among elites and greater citizen engagement, as well as by international actors supporting rules that strengthen coalitions for reform.Publication Finance and Prosperity 2024(Washington, DC: World Bank, 2024-08-29)While financial sector risks in the larger and higher per capita countries are moderate, half of lower-income countries face significant risks over the next 12 months. Nearly 70 percent of countries facing high financial sector risks are currently not adequately prepared to handle financial stress. The report also identifies a particular risk facing financial sectors in several countries: a large and growing exposure to sovereign debt. This exposure surged to its highest level in the past decade. Finally, the report looks at how countries can enable more climate finance through the banking sector without compromising on the important goals of financial sector stability and inclusion for underserved people.Publication World Development Report 2004(World Bank, 2003)Too often, services fail poor people in access, in quality, and in affordability. But the fact that there are striking examples where basic services such as water, sanitation, health, education, and electricity do work for poor people means that governments and citizens can do a better job of providing them. Learning from success and understanding the sources of failure, this year’s World Development Report, argues that services can be improved by putting poor people at the center of service provision. How? By enabling the poor to monitor and discipline service providers, by amplifying their voice in policymaking, and by strengthening the incentives for providers to serve the poor. Freedom from illness and freedom from illiteracy are two of the most important ways poor people can escape from poverty. To achieve these goals, economic growth and financial resources are of course necessary, but they are not enough. The World Development Report provides a practical framework for making the services that contribute to human development work for poor people. With this framework, citizens, governments, and donors can take action and accelerate progress toward the common objective of poverty reduction, as specified in the Millennium Development Goals.Publication Choosing Our Future(Washington, DC: World Bank, 2024-09-04)Education can propel faster and better climate action in two crucial ways. First, education can galvanize behavior change at scale - not just for tomorrow, but also for today. Second, education can unlock skills and innovation to shift economies onto greener trajectories for growth. At the same time, education needs to be protected from climate change. Extreme climate events and temperatures are already eroding hard-won progress on schooling and learning. Climate change is causing school closures, learning losses, and dropouts. These will turn into long-run inter-generational earnings losses putting into jeopardy education’s powerful potential for spurring poverty alleviation and economic growth. Governments can act now to adapt schools for climate change in cost-effective ways. This report outlines new data, evidence, and examples on how countries can harness education to propel climate action. It provides an actionable policy agenda to meet development, education, and climate goals together, recognizing that tackling climate change requires changes to individual beliefs, behaviors, and skills – changes that education is uniquely positioned to catalyze.