Spillovers from Agglomerations and Inward FDI. A Multilevel Analysis on SSA Domestic Firms

Abstract

This paper adopts multilevel analysis to analyse the agglomeration-performance nexus for domestic firms in Sub-Saharan Africa. We show that contextual factors such as country, city and industry together explain up to 30% of the variance in firms’ productivity. Our results show also that African firms can take advantage from agglomeration externalities when they locate in cities more densely populated by firms specialized in different sectors (urbanization economies), while their performance worsen when they face direct competition from firms in the same industry. These effects are similar in the services and the manufacturing industries, even if in the latter positive spillovers are found to be conditional to the presence of backward and foreign linkages with nearby firms. Finally, we are also able to show that these effects are magnified when domestic firms locate close to foreign multinationals, especially those coming from the South.