Cities and Productivity : Evidence from 16 Latin American and Caribbean Countries

This paper explores the roles of agglomeration economies and aggregate human capital in accounting for productivity variations across sub-national areas in 16 Latin American and Caribbean countries. We find that, while there is a strong and statistically positive relationship between worker productivity and population density at the sub-national level even after controlling for commonly observed worker characteristics, this relationship becomes much weaker once aggregate human capital is also controlled for. While heterogeneity exists across countries, the average regional agglomeration economies in Latin America and the Caribbean countries are similar to high-income countries and relatively weaker than those for other non-high-income countries for which comparable estimates exist in the literature. Estimated elasticities suggest that human capital externalities play a stronger role in explaining productivity variations than do agglomeration economies in our region. By providing comparable estimates of the strength of agglomeration economies and human capital externalities for so many countries, the paper considerably expands knowledge on the determinants of urban success in non-high-income countries