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The relationship among enterprise clustering, prices, and productivity in Ethiopia’s manufacturing sector
Author(s) -
Siba Eyerusalem,
Söderbom Måns,
Bigsten Arne,
Gebreeyesus Mulu
Publication year - 2020
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/rode.12677
Subject(s) - productivity , cluster analysis , product (mathematics) , externality , economics , industrial organization , manufacturing sector , manufacturing , product market , econometrics , business , microeconomics , labour economics , marketing , macroeconomics , incentive , statistics , geometry , mathematics
We use census panel data on Ethiopian manufacturing firms to analyze how enterprise clustering in local markets covaries with firm‐level output prices and physical productivity. We find a negative and statistically significant relationship between the density of firms that produce a given product in a given location and the local price of that product. We also find a positive and statistically significant relationship between the density of firms that produce a given product in a location and the physical productivity of same‐product firms in the location. These results are consistent with the notion that increased clustering of firms generates higher competitive pressure and positive externalities. Across firms that produce different products, we find no statistically significant relationship between enterprise clustering and firm‐level output prices and productivity. We also find no clustering effects across towns. Our results suggest that while clustering can impact firm performance, the advantages are narrow in scope.