Modern Urban and Regional Economics – McCann: Summary
chapters 2, 4, 5, 7, 8, 9, 10
Chapter 2: Agglomeration and clustering.
2.1 Introduction.
In reality the actual location behaviour of the firm is a result of a complex mix of several
influences; transport costs, local factor prices etc. This leaves us with the problem of
determining which particular influences are the dominant influences in which situations.
In describing the generally observable features of industrial location behaviour, two particular
features do stand out:
The first generally observed feature of industrial location behaviour is that most
industrial activities tend to be clustered together in space, and the reasons for this
clustering behaviour are examined in this chapter. Also, it is discussed why firms are
often clustered together in space.
The second feature – not discussed – is that there appears to be a size distribution of
spatial clusters, with different ranges of activities taking place in different clusters.
Some activities are typically dispersed over large areas while others are more
concentrated. Within a particular country or market area, there will usually be a single
largest city cluster which exhibits almost all types of activities, followed by larger
numbers of other smaller clusters which increase in number as their individual size
falls urban hierarchy.
2.2 Industrial clustering: returns to scale and geography.
Industrial clustering observation that all types of commercial activities – manufacturing,
services, resource-based industries – are frequently observed to be grouped together in space.
To explain this, we have to note that economies of scale can be place specific – firms in the
same locality achieve economies of scale precisely because of the large number of firms
located in the area. There will be high local land prices and high labour prices, but these
increased factor prices may be more than compensated for by the increased efficiency on the
part of each firm: higher profitability for all firms despite of local factor conditions. In-
migration will enhance growth.
Note: not all activity will end up in one location as implied; place specific economies of scale
do exists, but there may be limits to such effects.
2.3 Agglomeration economies.
Location specific economies of scale are generally known as agglomeration economies.
Marshall: agglomeration economies are generally understood to be external economies, which
are independent of a single firm, but which accrue to all of the firms located in the same area.
Hoover: somewhat different description of agglomeration economies.
2.3.1 The sources of agglomeration economies
Marshall: firms often continue to cluster successfully in the same locations. So increasing
returns to scale must be achieved. Marshall gives three reasons for this increasing returns to
scale being in place:
chapters 2, 4, 5, 7, 8, 9, 10
Chapter 2: Agglomeration and clustering.
2.1 Introduction.
In reality the actual location behaviour of the firm is a result of a complex mix of several
influences; transport costs, local factor prices etc. This leaves us with the problem of
determining which particular influences are the dominant influences in which situations.
In describing the generally observable features of industrial location behaviour, two particular
features do stand out:
The first generally observed feature of industrial location behaviour is that most
industrial activities tend to be clustered together in space, and the reasons for this
clustering behaviour are examined in this chapter. Also, it is discussed why firms are
often clustered together in space.
The second feature – not discussed – is that there appears to be a size distribution of
spatial clusters, with different ranges of activities taking place in different clusters.
Some activities are typically dispersed over large areas while others are more
concentrated. Within a particular country or market area, there will usually be a single
largest city cluster which exhibits almost all types of activities, followed by larger
numbers of other smaller clusters which increase in number as their individual size
falls urban hierarchy.
2.2 Industrial clustering: returns to scale and geography.
Industrial clustering observation that all types of commercial activities – manufacturing,
services, resource-based industries – are frequently observed to be grouped together in space.
To explain this, we have to note that economies of scale can be place specific – firms in the
same locality achieve economies of scale precisely because of the large number of firms
located in the area. There will be high local land prices and high labour prices, but these
increased factor prices may be more than compensated for by the increased efficiency on the
part of each firm: higher profitability for all firms despite of local factor conditions. In-
migration will enhance growth.
Note: not all activity will end up in one location as implied; place specific economies of scale
do exists, but there may be limits to such effects.
2.3 Agglomeration economies.
Location specific economies of scale are generally known as agglomeration economies.
Marshall: agglomeration economies are generally understood to be external economies, which
are independent of a single firm, but which accrue to all of the firms located in the same area.
Hoover: somewhat different description of agglomeration economies.
2.3.1 The sources of agglomeration economies
Marshall: firms often continue to cluster successfully in the same locations. So increasing
returns to scale must be achieved. Marshall gives three reasons for this increasing returns to
scale being in place:
