Agglomeration and productivity in South Africa

by Hammad Amusa, Njeri Wabiri, and David Fadiran

The literature on agglomeration economies has provided abundant evidence on an association between clustering and productivity. In the context of South Africa, the analysis of the spatial dimensions of economic activity and the impact of agglomerations on sub-national regions remains limited. In this study, we explore the nature of dynamic interactions between economic activities across South Africa’s sub-national regions, and the extent to which the concentration of industrial activity stimulates productivity. The study makes use of a rich and newly available tax dataset comprising tax administration information at the firm-level over the period 2008 – 2014. In analysing this data, this study aims to three key research questions: (i) are firms located in larger regions/cities more productive when controlling for attributes of individual firms? (ii) does the relationship between regional size and productivity of large firms differ from that between regional size and the productivity of small firms? and (iii) do firms benefit from spillovers generated by agglomeration of economic activities? Insights from this study can potentially inform current efforts aimed at designing appropriate regional industrial policies targeted at expanding the scope of economic activities in a manner that enhances employment opportunities and local economic performance across South Africa’s regions.