Agglomeration and productivity in the service sector: unravelling spatial spillovers in Ecuadorian regions

We analyse the impact of agglomeration on labour productivity in Ecuador’s service sector using panel data from 221 cantons over the period 2012–2020. Estimating both a standard linear model and a spatial Durbin model, we find that while agglomeration positively affects productivity locally, it generates negative spillovers in neighbouring cantons – suggesting interregional competition for resources and skilled labour. These findings are robust across agglomeration indicators and instrumental variable approaches. Our findings highlight the importance of spatially informed policies, as agglomeration may reinforce centre–periphery dynamics and exacerbate regional inequalities, particularly in developing countries with uneven economic and territorial structures.