Enterprise agglomeration, output prices, and physical productivity: Firm-level evidence from Ethiopia

We use census panel data on Ethiopian manufacturing firms to analyze the connections between enterprise agglomeration, firm-level output prices and physical productivity. We find a negative and statistically significant relationship between the agglomeration of firms that produce a given product in a given location and the price of that product in the location. We further find a positive and statistically significant relationship between the agglomeration of firms that produce a given product in a location and the physical productivity of firms in the same location producing that product. These results are consistent with the notion that agglomeration generates higher competitive pressure and positive externalities. The net effect of agglomeration of own-product firms on firm-level revenues is close to zero, suggesting that firms do not have strong incentives to agglomerate endogenously. Across firms that produce different products, we find no statistically significant relationship between agglomeration and firm-level output prices and productivity.