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The study investigates agglomeration externalities in Ecuador. It develops a method for defining functional urban areas where commuting data are not available. Having defined cities, the study examines the production side of agglomeration economies, emphasising the informal sector, which accounts for a significant part of total employment. The study investigates the impact of spatial externalities on the wages of workers and finds that these externalities matter.
Moreover, analysis of the interaction between spatial externalities and informality shows a general penalisation of workers employed in the informal sector in terms of benefits from these externalities. The study then examines the consumption side by looking at slums.
It uses eight variables to measure the prevalence of slums and finds that more than half of city households have at least one slum characteristic. Based on its slum index the study finds that slums are less prevalent in larger cities. In the particular case of Guayaquil, the study observes that new areas tend to have slum characteristics.