Agglomeration Effects in a Developing Economy: Evidence from Turkey

Spatial inequalities in Turkey are a source of considerable policy concern. In this paper, I estimate agglomeration effects for Turkish provinces to shed light on the origins of spatial inequality in productivity and provide evidence from a developing country context which literature needs. I use social security data, an administrative dataset recently made available at the NUTS-3 level, for 81 provinces of Turkey for the period 2008-2013 and carry out a two-step estimation. I use a variety of panel data techniques and historical instruments to deal with estimation concerns. I estimate an elasticity of labor productivity with respect to the density of 0.056-0.06, which is higher than in developed countries and around the levels observed in developing countries. Contrasting the evidence coming from developed countries, I find weak effects for sorting of workers across Turkish provinces based on observable characteristics.