Handbook of Regional Growth and Development Theories
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Handbook of Regional Growth and Development Theories

Edited by Roberta Capello and Peter Nijkamp

Regional economics – an established discipline for several decades – has gone through a rapid pace of change in the past decade and several new perspectives have emerged. At the same time the methodology has shown surprising development. This volume brings together contributions looking at new pathways in regional economics, written by many well-known international scholars. The most advanced theories, measurement methods and policy issues in regional growth are given in-depth treatment.
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Chapter 6: Agglomeration, Productivity and Regional Growth: Production Theory Approaches

Jeffrey P. Cohen and Catherine J. Morrison Paul


Jeffrey P. Cohen and Catherine J. Morrison Paul 6.1 Introduction One definition of agglomeration economies is that ‘cost reductions occur because economic activities are located in one place’ (McDonald and McMillen, 2007), an idea typically attributed to Marshall (1920). Ohlin (1933) more specifically categorized agglomeration economies by distinguishing localization economies and urbanization economies, which has become a standard in the urban economics literature. Localization economies involve benefits to firms from expansion of their own industry, resulting in industry ‘clusters’. Urbanization economies occur when expansion of an urban area benefits firms from the proximity of a variety of industries, leading to regional growth. Both of these types of agglomeration economies, arising respectively from geographic concentration of ‘specialized’ and ‘diverse’ production, imply lower costs in real terms rather than in nominal terms for firms. However, because they result from factors beyond the control of individual firms, agglomeration economies are often theoretically modeled as external scale economies. The ‘causes’ of agglomeration economies may take a variety of forms. For example, proximity of ‘like’ firms may increase the quantity or quality of the labor pool so better matches or less risk are involved in hiring; proximity of suppliers may involve easier access to or lower costs of materials inputs; or proximity of population concentrations may facilitate distribution of products. These specific channels explaining clustering, as has been discussed at length in the agglomeration economies literature (and summarized by Rosenthal and Strange, 2004), are often called the ‘micro-foundations’ underlying...

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