Industrial Agglomeration and Labor Productivity: Evidence from Manufacturing Establishments in Thailand

Abstract

This paper aims to answer three research questions: do agglomeration economies help improve manufacturing establishments’ labor productivity?; what form of agglomeration economies (urbanization or localization) is more conducive to enhancing labor productivity?; and at what sectoral and spatial scopes that agglomeration is most relevant for productivity improvement? To answer these research questions, I use a two-stage least square regression to analyze Thailand’s industrial census data for the year 2007. The results from such analysis reveal that industrial agglomeration helps improve establishments’ labor productivity. However, the form of agglomeration matters. Localization economies are more conducive to such productivity improvement than urbanization economies. This happens only when a broader-range and complementary activities are spatially agglomerated. In other words, sectoral scope of agglomeration matters.