This paper analyzes how territorial conditions influence the productivity of manufacturing and service
firms in Ecuador. We employ multilevel models to estimate the effects of the urban population share and
regional sectoral diversity on total factor productivity and labor productivity, also incorporating the
moderating role of innovation. The results show that approximately 5% of the differences in productivity
are attributable to geographic location. The share of urban population has a positive effect in both sectors,
while sectoral diversity benefits manufacturing exclusively. Likewise, it is observed that innovative
manufacturing firms enhance the benefits of both agglomeration and diversity, while service innovative
firms obtain additional advantages from diversity.