Why cities are regarded as productive engines of growth? Topic 4 P3

Sources of agglomeration economies

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Region-Quiz-25

Sources of agglomeration economies

Topic 4_P6
Four initiating factors (sources of agglomeration economies):

Information spill-overs - the grouping in the same location of firms from the same industry facilitates the sharing of tacit information between the participants, and decision-making.
Non-traded local inputs – it offers opportunities for certain specialist inputs to be available to all of participants in a more efficient manner than if they were widely spaced,
A local skilled labour pool - the specialist skills required by a certain industry allows to reduce labour acquisition costs when expanding its workforce,
Urban consumption opportunities (consumption amenities) - urban residents gain an advantage from their proximity to other people, and consumer goods and services which allows firms to achieve an efficient scale of production

Topic 4_P7

Internal returns to scale - refers directly to a firm’s production and can be simply achieved by expanding production at a single location. They are internal to a firm and result in falling unit cost over a given scale of operation,
Localisation economies - are external to a firm and accrue to a group of them within the same industry located in the same place – they arise because of the size of the local industry – the larger the industry becomes, the lower are the costs. They occur within a particular sector,
Urbanisation economies - are those which accrue to firms across different sectors. Firms tend to agglomerate within urban areas and create clusters of differentiated industries by reason of productivity and utility created endogenously by larger cities. They are often described as “external economies” since the benefits cannot be used privately by any single firm or group of firms. They generate savings to all firms and incentives for business to centralise their activities in a particular area.

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