The Impact of Specialization and Diversification in Urban Economic Activities on Labor Productivity in the Provinces of Iran (2000-13)

Economic specialization and diversification in an urban area are main factors forming agglomeration economies. Agglomeration economies increase productivity of clustered firms in an area. This research investigates the impact of specification and diversification in economic activities on labor productivity in the provinces of Iran during 2000-13. Therefore, first, urban economic specification and diversification are measured using appropriate indices. Then, the indices are entered in the productivity model as an independent variable. Since used data has locational dimension and the spatial dependence diagnostic tests are significance, the specified model is estimated through spatial econometric techniques.
The results show in both spatial lag and error, specialization and diversification of economic activities, as well as capital stock and government budget have a significant positive with productivity. But human capital has a U-shaped relationship with productivity. In addition, the estimated coefficients of spatial lag and spatial error are positive and statistically significant and indicate spatial dependence of productivity in the provinces of Iran.