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Explaining local manufacturing growth in Chile: the advantages of sectoral diversity

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This article investigates whether the agglomeration of economic activity in regional clusters affects long-run manufacturing Total Factor Productivity (TFP) growth in an emerging market context. We explore a large firm-level panel dataset for Chile during a period characterized by high growth rates and rising regional income inequality (1992–2004). Our findings are clear-cut. Locations with greater concentration of a particular sector have not experienced faster TFP growth during this period. Rather, local sector diversity was associated with higher long-run TFP growth. However, there is no evidence that the diversity effect was driven by the local interaction with a set of suppliers and/or clients. We interpret this as evidence that agglomeration economies are driven by other factors such as the sharing of access to specialized inputs not provided solely by a single sector, e.g. skills or financing.
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Keywords: Chile; O47; R11; R12; agglomeration economies; knowledge spillovers; local growth; total factor productivity growth

Document Type: Research Article

Affiliations: The World Bank, 1818 H Street, N.W.Washington 20433, USA

Publication date: 2013-06-01

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