Ricerc@Sapienza

This article investigates the incidence of agglomeration
externalities in Ecuador, a small‐sized, middle‐income
developing country. In particular, we analyze the role of
the informal sector within these relations, since informal
employment accounts for a significant part of total employment
in the developing countries. Using individual level data
and instrumental variable techniques, we investigate the
impact of spatial externalities, in terms of population density,
local specialization and urban size, on the wages of workers
in Ecuadorian cities. The results show that spatial externalities
matter also for a small developing country.
Moreover, analysis of the interaction between spatial
externalities and informality shows that, on average, workers
employed in the informal sector do not enjoy significant
benefits from agglomeration externalities. Finally, by investigating
the possible channels behind spatial agglomeration
gains we show that the advantages from agglomeration
for formal sector workers may well be accounted for by
better job‐quality matches and, to a lesser extent, by learning
externalities. For informal sector workers, our findings also
suggest possible gains from job changes, which offset a
penalty for remaining employed in the same occupation.