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Eyerusalem Siba and Måns Söderbom

There are several possible reasons why the agglomeration of enterprises can be a source of improved performance. For example, firms located close to each other stand a better chance of benefiting from information spillovers. Access to labour tends to be better, and transaction costs tend to be lower, in areas where the population of firms is dense. Especially in settings where firms tend to be strongly oriented towards supplying the local market, increased agglomeration tends to raise competitive pressure, which may spur productivity growth. There is a large body of empirical literature investigating the relationship between agglomeration and firm-level performance in the USA and Europe. For low-income countries, however, the connections between agglomeration and firm performance have not been as thoroughly documented, and for the world's poorest region, sub-Saharan Africa (SSA), the existing evidence is particularly scarce. This chapter reviews the literature on agglomeration economies focusing on SSA by accounting for recent emerging findings in the area of learning outcomes of agglomeration economies and methodological developments. The chapter identifies the knowledge gap and suggests ways forward.