Productivity, agglomeration, and diversity

This paper analyzes how territorial conditions influence the productivity of manufacturing and service firms in Ecuador. We employ multilevel models to estimate the effects of the urban population share and regional sectoral diversity on total factor productivity and labor productivity, also incorporating the moderating role of innovation. The results show that approximately 5% of the differences in productivity are attributable to geographic location. The share of urban population has a positive effect in both sectors, while sectoral diversity benefits manufacturing exclusively. Likewise, it is observed that innovative manufacturing firms enhance the benefits of both agglomeration and diversity, while service innovative firms obtain additional advantages from diversity.