Geographical Aggregation of Industrial Activities and Productivity Growth: The Evidence from Iran's Provinces Manufacturing Industries

This paper investigates the impact of spatial aggregation of industrial activities on manufacturing industries productivity growth of Iran's provinces during 2004-2013, using cross-section data and dynamic pooled regression by Generalized Method of Moments (GMM). To measure industrial aggregation Ellison Glaeser (EG) index was used. The findings support the “Williamson hypothesis”, that is, aggregation of industrial activities has positive effect on DP growth only up to a certain level of development. If economic infrastructures, specially, transportation are not suitable, the communication simply is not possible and the access to the capital markets is limited, also, efficiency can be significantly enhanced by concentrating on production in space. But as infrastructure improves and markets expand, congestion externalities vary in the development phases and it can result in more dispersion in economic activities. Namely, aggregation accumulates human and physical capital and this accelerates economic growth.