Productivity and agglomeration economies in the manufacturing of the metropolitan areas of Mexico, 1998–2018

Abstract

Mexico has experienced intense urbanization in recent decades. Although all the metropolitan areas of the country have grown, the size generated by the megalopolis of the Valle de México is especially relevant since it is able to generate more intense agglomeration economies than those of the rest of the urban concentrations. This heterogeneity in the urban structure of the country makes the analysis of the effect of agglomeration economies on productivity for the Mexican case especially interesting. Through a panel model with fixed effects, we studied the effects of agglomeration economies on labor productivity of the manufacturing industry in the metropolitan municipalities of Mexico. We propose an adaptation of the model of Combes (2000) to isolate the effects of localization economies though a specialization index and urbanization economies though an index of economic diversity and occupational density. Our results indicate that specialization and the level of economic diversity clearly contribute to explaining the productivity levels of manufacturers among metropolitan municipalities.

Urbanization and productivity at a global level: new empirical evidence for the services sector

“…For developing countries, a direct policy implication of our results is to increase investment in human capital and to promote the formalization of businesses. This conclusion is grounded on the fact that countries with a more educated workforce have the potential to generate more knowledge, either through investment in R&D activities or through practical learning, which benefits productivity growth (Arias‐Ortiz et al, 2014; Prudencio‐Vázquez et al, 2021). It is also important to identify in what type of cities within urban systems of developing countries the greatest productivity losses take place and whether or not developing countries should consolidate production in large cities that concentrate a high percentage of informal and low‐skilled workers, instead of promoting economic activities in medium‐sized secondary cities.…”

“…However, in developed countries' mature city systems with standardized manufacturing production has tended to spread into small‐ and medium‐sized metropolitan areas, while production in large metropolitan areas is mostly specialized in services, R&D, and nonstandardized manufacturing. The problem in developing countries is that there seems to be a strong bias towards an excessive concentration of their urban systems (Henderson, 2002; Prudencio‐Vázquez et al, 2021). This aspect is directly related to the speed of urbanization in Latin America and Africa (Cerrutti & Bertoncello, 2003; Ebeke & Etoundi, 2017).…”