Proximity without Productivity
Recent literature suggests that the positive impact of population density on wages, the canonical measure of agglomeration effects, is multiples higher in developing countries than in advanced economies. This poses an urban productivity puzzle because on-the-ground observations do not suggest that cities in developing countries function especially well or are conducive to enhanced productivity. This paper uses manufacturing censuses from four countries at differing levels of income that allow separating plant output quantity from prices. It shows that higher wage elasticities with respect to density are due to higher marginal costs, and agglomeration elasticities of efficiency, physical total factor productivity, are in fact far lower in developing countries. Further, congestion costs decrease with country income. Both are consistent with often low rates of structural transformation that make cities in developing countries so-called “sterile agglomerations,” which are populous but not efficient.
| Main Authors: | , |
|---|---|
| Language: | English |
| Published: |
World Bank, Washington, DC
2022-03
|
| Subjects: | AGGLOMERATION, PRODUCTIVITY, CITIES STRUCTURAL TRANSFORMATION, CITY, URBAN LABOR MARKET, URBAN POPULATION DENSITY, WAGE ELASTICITY, WAGE PRESSURE DATA, |
| Online Access: | http://documents.worldbank.org/curated/en/647331647886638218/Proximity-without-Productivity-Agglomeration-Effects-with-Plant-Level-Output-and-Price-Data https://hdl.handle.net/10986/37199 |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| Summary: | Recent literature suggests that the
positive impact of population density on wages, the
canonical measure of agglomeration effects, is multiples
higher in developing countries than in advanced economies.
This poses an urban productivity puzzle because
on-the-ground observations do not suggest that cities in
developing countries function especially well or are
conducive to enhanced productivity. This paper uses
manufacturing censuses from four countries at differing
levels of income that allow separating plant output quantity
from prices. It shows that higher wage elasticities with
respect to density are due to higher marginal costs, and
agglomeration elasticities of efficiency, physical total
factor productivity, are in fact far lower in developing
countries. Further, congestion costs decrease with country
income. Both are consistent with often low rates of
structural transformation that make cities in developing
countries so-called “sterile agglomerations,” which are
populous but not efficient. |
|---|