Publication: Agglomeration Economies and Transport Connectivity Revisited: A Regional Perspective Based on Evidence from the Caucasus and Central Asian Countries
Loading...
Published
2023-08-02
ISSN
Date
2023-08-02
Author(s)
Editor(s)
Abstract
Transport connectivity is an important determinant of agglomeration economies and urbanization. However, measuring its impacts is a complex task when causality is considered. An important empirical challenge comes from potential endogeneity of infrastructure placement. To deal with the endogeneity problem, first, the paper constructs detailed georeferenced connectivity measurements based on micro shipping data collected over 10 years. Then, the system generalized method of moments regression is applied. Using unique data from the Caucasus and Central Asian countries, the paper estimates the impact of transport connectivity on agglomeration economies. It finds that agglomeration economies are significant and persistent in the region. Thus, the existing firm clusters are likely to continue growing. However, a constraint is also found. Large cities exhibit congestion diseconomies. Finally, the paper shows that the improvement of transport connectivity, especially local market accessibility, has a significant effect on agglomeration. By contrast, no clear evidence to support the impact of improved regional connectivity on agglomeration is observed yet. To take full advantage of agglomeration economies at the regional level, further efforts may be needed, for instance, toward increasing efficiency in transportation and logistics, improving the freight load, and/or reducing the time and costs of border crossing, which add to overall transport costs and times.
Link to Data Set
Citation
“Iimi, Atsushi. 2023. Agglomeration Economies and Transport Connectivity Revisited: A Regional Perspective Based on Evidence from the Caucasus and Central Asian Countries. Policy Research Working Papers; 10534. © World Bank. http://hdl.handle.net/10986/40137 License: CC BY 3.0 IGO.”
Digital Object Identifier
Associated URLs
Associated content
Other publications in this report series
Journal
Journal Volume
Journal Issue
Collections
Related items
Showing items related by metadata.
Publication Firm Location, Transport Connectivity, and Agglomeration Economies(World Bank, Washington, DC, 2018-04)Transport connectivity is among the most important factors in increasing firm productivity and accelerating economic development. The literature generally supports the idea of agglomeration economies, although there is little evidence of their effectiveness in Africa. There are often empirical challenges, such as spatial externalities and endogeneity of infrastructure development. Using firm registry data in Liberia, this study used the instrumental variable spatial autoregressive model to examine the effects of transport connectivity on firms' decisions on where to locate. The study found significant spatial autocorrelation and possible endogeneity related to transport infrastructure, and that firms are more likely to be located where market accessibility is better. The data indicated strong agglomeration economies, indicating that the primary city, Monrovia, is likely to continue to grow and attract more people and firms, and that secondary cities can also grow with greater transport connectivity between populated areas, such as district centers.Publication Estimating the Impacts of Transport Corridor Development in Kazakhstan(World Bank, Washington, DC, 2022-09)Large-scale transport infrastructure investment can facilitate structural transformation by changing firm behavior. Although its impact is evident over the long term, an important empirical challenge is potential endogeneity of infrastructure placement. By using the dynamic panel data regression, the paper examines the impacts of massive road corridor investment under the Nurly Zhol program in Kazakhstan. The paper takes advantage of detailed micro shipping data to capture historical changes in transport connectivity over the past 10 years. While the average travel speed has slightly increased, transport costs have been nearly halved. The estimated translog cost functions indicate that local market accessibility is the most important factor to boost firm productivity. The elasticity was 0.24 in absolute terms. Inventory is found to be a major cost factor for firms. It is found that a 10-percent improvement in accessibility to large cities, such as Astana and Almaty, could allow firms to reduce their inventory by 8.7 percent. The market accessibility is found to foster firm agglomerations, but agglomeration economies do not seem to translate into higher firm productivity. This is possibly because the Kazakh economy still lacks effective forward or backward linkages across industries.Publication Spatial Analysis of Liberia’s Transport Connectivity and Potential Growth(Washington, DC: World Bank, 2018-06-11)Liberia has been influenced by the Ebola crisis since 2014, but the economy is now recovering quickly. Still, significant challenges lie ahead. Agriculture, an important sector that employs approximately half of the labor force, still has a weak growth trajectory. Many rural people are not well connected to markets and live below the poverty line. To use limited resources effectively, strategic planning and prioritization of public investment are essential. Particularly, the Ebola crisis revealed the vulnerability of the country's transport connectivity and health systems. This book analyzes the country's transport connectivity, identifying the existing bottlenecks and possible economic potentials. By taking advantage of the country's first-ever georeferenced road network data, the analysis casts light on various aspects of connectivity, such as rural accessibility, market access, access to port and health facilities and multimodal connectivity, including cabotage. It is shown that transport connectivity is crucial to increasing agricultural production, stimulating agglomeration economies, and supporting people's access to health care services. Significant resources are likely to be required to meet the existing gap. The book estimates the financial needs by development objective and discusses important policy issues, including the possibility of public-private partnerships to finance transport infrastructure.Publication Firms’ Locational Choice and Infrastructure Development in Tanzania(World Bank, Washington, DC, 2015-06)Agglomeration economies are among the most important factors in increasing firm productivity. However, there is little evidence supportive of this in Africa. Using the firm registry database in Tanzania, this paper examines a new application of the logit approach with two empirical issues taken into account: spatial autocorrelation and endogeneity of infrastructure placement. The paper finds significant agglomeration economies. It is also found that firms are more likely to be located where local connectivity and access to markets are good. The paper finds that dealing with infrastructure endogeneity and spatial autocorrelation in the empirical model is important. According to the exogeneity test, infrastructure variables are likely endogenous. The spatial autoregressive term is significant. As expected, therefore, there are positive externalities of firm location choice around the neighboring areas.Publication Firms’ Locational Choice and Infrastructure Development in Rwanda(World Bank, Washington, DC, 2015-06)Agglomeration economies are among the most important factors to increase firm productivity. However, there is little evidence supportive of this in Africa. By applying the conditional and nested logit models, this paper examines the relationship between firm locations and infrastructure accessibility in Rwanda. It is found that agglomeration economies matter to even one of the smallest countries in Africa. It is also found that infrastructure availability has an important role in affecting the firm location decision. Electricity access and transport connectivity to the domestic and international markets are found to be important to attract new investment. In addition, the quality of local labor supplied, measured by educational attainment, is found as an important determinant of firm location, while the effect of labor costs remains inconclusive.
Users also downloaded
Showing related downloaded files
Publication Global Economic Prospects, January 2025(Washington, DC: World Bank, 2025-01-16)Global growth is expected to hold steady at 2.7 percent in 2025-26. However, the global economy appears to be settling at a low growth rate that will be insufficient to foster sustained economic development—with the possibility of further headwinds from heightened policy uncertainty and adverse trade policy shifts, geopolitical tensions, persistent inflation, and climate-related natural disasters. Against this backdrop, emerging market and developing economies are set to enter the second quarter of the twenty-first century with per capita incomes on a trajectory that implies substantially slower catch-up toward advanced-economy living standards than they previously experienced. Without course corrections, most low-income countries are unlikely to graduate to middle-income status by the middle of the century. Policy action at both global and national levels is needed to foster a more favorable external environment, enhance macroeconomic stability, reduce structural constraints, address the effects of climate change, and thus accelerate long-term growth and development.Publication The Container Port Performance Index 2023(Washington, DC: World Bank, 2024-07-18)The Container Port Performance Index (CPPI) measures the time container ships spend in port, making it an important point of reference for stakeholders in the global economy. These stakeholders include port authorities and operators, national governments, supranational organizations, development agencies, and other public and private players in trade and logistics. The index highlights where vessel time in container ports could be improved. Streamlining these processes would benefit all parties involved, including shipping lines, national governments, and consumers. This fourth edition of the CPPI relies on data from 405 container ports with at least 24 container ship port calls in the calendar year 2023. As in earlier editions of the CPPI, the ranking employs two different methodological approaches: an administrative (technical) approach and a statistical approach (using matrix factorization). Combining these two approaches ensures that the overall ranking of container ports reflects actual port performance as closely as possible while also being statistically robust. The CPPI methodology assesses the sequential steps of a container ship port call. ‘Total port hours’ refers to the total time elapsed from the moment a ship arrives at the port until the vessel leaves the berth after completing its cargo operations. The CPPI uses time as an indicator because time is very important to shipping lines, ports, and the entire logistics chain. However, time, as captured by the CPPI, is not the only way to measure port efficiency, so it does not tell the entire story of a port’s performance. Factors that can influence the time vessels spend in ports can be location-specific and under the port’s control (endogenous) or external and beyond the control of the port (exogenous). The CPPI measures time spent in container ports, strictly based on quantitative data only, which do not reveal the underlying factors or root causes of extended port times. A detailed port-specific diagnostic would be required to assess the contribution of underlying factors to the time a vessel spends in port. A very low ranking or a significant change in ranking may warrant special attention, for which the World Bank generally recommends a detailed diagnostic.Publication Global Economic Prospects, June 2025(Washington, DC: World Bank, 2025-06-10)The global economy is facing another substantial headwind, emanating largely from an increase in trade tensions and heightened global policy uncertainty. For emerging market and developing economies (EMDEs), the ability to boost job creation and reduce extreme poverty has declined. Key downside risks include a further escalation of trade barriers and continued policy uncertainty. These challenges are exacerbated by subdued foreign direct investment into EMDEs. Global cooperation is needed to restore a more stable international trade environment and scale up support for vulnerable countries grappling with conflict, debt burdens, and climate change. Domestic policy action is also critical to contain inflation risks and strengthen fiscal resilience. To accelerate job creation and long-term growth, structural reforms must focus on raising institutional quality, attracting private investment, and strengthening human capital and labor markets. Countries in fragile and conflict situations face daunting development challenges that will require tailored domestic policy reforms and well-coordinated multilateral support.Publication Business Ready 2024(Washington, DC: World Bank, 2024-10-03)Business Ready (B-READY) is a new World Bank Group corporate flagship report that evaluates the business and investment climate worldwide. It replaces and improves upon the Doing Business project. B-READY provides a comprehensive data set and description of the factors that strengthen the private sector, not only by advancing the interests of individual firms but also by elevating the interests of workers, consumers, potential new enterprises, and the natural environment. This 2024 report introduces a new analytical framework that benchmarks economies based on three pillars: Regulatory Framework, Public Services, and Operational Efficiency. The analysis centers on 10 topics essential for private sector development that correspond to various stages of the life cycle of a firm. The report also offers insights into three cross-cutting themes that are relevant for modern economies: digital adoption, environmental sustainability, and gender. B-READY draws on a robust data collection process that includes specially tailored expert questionnaires and firm-level surveys. The 2024 report, which covers 50 economies, serves as the first in a series that will expand in geographical coverage and refine its methodology over time, supporting reform advocacy, policy guidance, and further analysis and research.Publication Digital Progress and Trends Report 2023(Washington, DC: World Bank, 2024-03-05)Digitalization is the transformational opportunity of our time. The digital sector has become a powerhouse of innovation, economic growth, and job creation. Value added in the IT services sector grew at 8 percent annually during 2000–22, nearly twice as fast as the global economy. Employment growth in IT services reached 7 percent annually, six times higher than total employment growth. The diffusion and adoption of digital technologies are just as critical as their invention. Digital uptake has accelerated since the COVID-19 pandemic, with 1.5 billion new internet users added from 2018 to 2022. The share of firms investing in digital solutions around the world has more than doubled from 2020 to 2022. Low-income countries, vulnerable populations, and small firms, however, have been falling behind, while transformative digital innovations such as artificial intelligence (AI) have been accelerating in higher-income countries. Although more than 90 percent of the population in high-income countries was online in 2022, only one in four people in low-income countries used the internet, and the speed of their connection was typically only a small fraction of that in wealthier countries. As businesses in technologically advanced countries integrate generative AI into their products and services, less than half of the businesses in many low- and middle-income countries have an internet connection. The growing digital divide is exacerbating the poverty and productivity gaps between richer and poorer economies. The Digital Progress and Trends Report series will track global digitalization progress and highlight policy trends, debates, and implications for low- and middle-income countries. The series adds to the global efforts to study the progress and trends of digitalization in two main ways: · By compiling, curating, and analyzing data from diverse sources to present a comprehensive picture of digitalization in low- and middle-income countries, including in-depth analyses on understudied topics. · By developing insights on policy opportunities, challenges, and debates and reflecting the perspectives of various stakeholders and the World Bank’s operational experiences. This report, the first in the series, aims to inform evidence-based policy making and motivate action among internal and external audiences and stakeholders. The report will bring global attention to high-performing countries that have valuable experience to share as well as to areas where efforts will need to be redoubled.