This paper aims to examine the effect of agglomeration on firm level productivity in Iran’s food manufacturing by employing a firm level dataset during 1986–2015 among firms for four districts. The empirical results show that agglomeration in north districts are key factors in productivity growth. In this work, we apply a spatial Bayes model that uses hierarchical techniques during the three terms. The productivity clustering map is able to capture such patterns as the high productivity area that appears in the south, north districts of Iran. This paper evaluates the effect of agglomeration on firm productivity in Iran’s food industries at district level. We find that regional market potential is the strong predictor of productivity; moreover, industrial agglomeration has a productivity-augmenting impact.

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