Analysis of Economic Theories Related to Urban Agglomeration

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Analysis of Economic Theories Related to Urban Agglomeration Moon, Youngjin
Pusan National University

Urbanization became an important issue of China as China keeps growing rapidly and deepening industrialization. Chinese government has promoted urbanization to benefit from agglomeration economies. And urbanization tendency is expected to continue. Generally, agglomeration economies in China are considered to play a positive role in recent rapid growth, but adverse reaction must be followed. Theories about agglomeration economies and diseconomies arising from urbanization are described as follows. Agglomeration economies are defined as the external economies or diseconomies arising from the concentration of firms or industries in a particular region. Agglomeration economies are usually measured by cost reductions or productivity increases of the firms of industries in an agglomerated region. When data for production cost or output are unavailable, these measures are sometimes replaced by changes in the level of employment or in the rates of employment growth.

The original idea of agglomeration economies is introduced by Alfred Marshall, although he did not use the exactly same term. He argued that businesses gather around a locality because there are following advantages to operating amongst businesses: benefits arising from the diffusion of trade secrets, exchanges of new ideas, the accessibility of supplying firms and new inventions and developments in machinery, in the structure of organizations and in working process.

There are two kinds of agglomeration economies. One is economies of localization, which arises from relations of firms operating in the same field in the locality. The other is economies of urbanization obtained from the variety and diversity, rather than specialization, of geographically neighboring industries.

There is a consensus to some extent in literatures about sources of agglomeration economies. Sources can be...
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