Abstract
Purpose of the research. This paper studies the effect of spatial agglomeration on firms’ total factor productivity in Kazakhstan using panel data from 2009 to 2017. Methodology. We employ a two-stage estimation strategy and control for endogeneity biases by making use of the GMM approach. The firm-level data is obtained from the Bureau of National Statistics of the Agency for Strategic Planning and Reforms of the Republic of Kazakhstan. Originality / value of the research. This study contributes to an empirical study of spatial concentration and firm-level productivity in developing countries and provides valuable insights for policymakers to consider before implementing government programs. Findings. The results suggest that productivity increases with clustering: a 10 % increase in the number of employees of the neighboring firms inside the same industry increases firm-level productivity by 1.36 %, while a 10 % increase in employment in other industries enhances firm performance by 1.95 %. The productivity gains are higher at the 2-digit regional level rather than at the 9-digit sub-regional level of geographical aggregation, implying that the denser geography increases firms’ performance.