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Effect of agglomeration on technical efficiency of small and medium‐sized garment firms in Egypt

This study investigates the effect of agglomeration on technical efficiency of small and medium‐sized garment firms in Egypt. Using a sample of 502 firms, we estimated a translog stochastic frontier production function with inefficiency components. We also applied a switching regression model to address self‐selection in choice of agglomeration. Results confirm that agglomeration enhances technical efficiency of sampled firms through development of industrial linkages and accumulation of human capital. Given the increasing importance of cluster‐based development policies, we underscore the need to promote agglomeration of garment firms, and thereby foster forward and backward linkages to improve their efficiency and to develop global value chains.