Labor Productivity and Agglomeration Economies: Evidence for the State of Bahia

Abstract

This paper analyzes the effect of agglomeration economies on labor productivity in the State of Bahia from 2002 to 2016. The literature points out that labor productivity depends on the local productive structure and the agglomeration externalities. A dynamic panel data model was used to estimate the indicators of labor productivity at the municipal level. The Generalized Moments Method - GMM System - with instrumental variables was adopted to deal with lagged productivity and unobserved factors in the municipalities. The analysis was carried out in two stages considering the municipalities outside the Semi-Arid (Group 1) and the set of municipalities in the Semi-Arid (Group 2). The results showed that lagged labor productivity had the greatest influence on current productivity levels, especially for Group 1. For both groups, the specialization (QL) and sectoral diversification (HHM) coefficients showed a negative effect in most analyzed sectors. There was no evidence of positive externalities of agglomeration, based on population size and population and employment densities. The other socioeconomic variables showed different results between the groups analyzed.