Agglomeration and firm-level productivity in African cities

Working Paper 931

Abstract

Africa's prosperity hinges on the success of its cities. Yet in many African countries, the expected productivity gains from urbanisation are stifled by chronic infrastructure deficits, governance weaknesses and market inefficiencies. This study examines evidence on the relationship between agglomeration and firm-level productivity covering 157 cities across 33 African nations, using comparable cross-country data from the World Bank Enterprise Surveys and the Global Human Settlement Layer. The findings reveal a loose but positive link between city size and productivity. This is robust to econometric controls and choice of sales per worker, wages or total factor productivity. Interestingly, service firms benefit roughly twice as much as manufacturers, underscoring the importance of service industries in Africa’s growth. Surprisingly, features of the built environment, such as surface area, building height and road networks show limited impact, suggesting that infrastructure quality may matter more than urban form. While agglomeration economies offer potential benefits for African countries, the relationship is weak and highly variable across cities and countries. Further research is needed to uncover the forces and obstacles at work in more detail.