Transcript
Page 1: Agglomeration Facts and theories about agglomeration

Agglomeration

Facts and theories about agglomeration

Page 2: Agglomeration Facts and theories about agglomeration

Agglomeration

Concentration of economic activityCore and peripheryEconomic development is unevenly

distributed in spaceShould we worry about agglomeration?

Page 3: Agglomeration Facts and theories about agglomeration

Agglomeration

http://www.savethenight.eu/Lights in Europe.html

Page 4: Agglomeration Facts and theories about agglomeration

Agglomeration

Concentration of economic activity is associated with strong disparities in income per capita

Income per capita is a good proxy for standard of living and people well being

Large disparities in income per capita in Europe at national level

Page 6: Agglomeration Facts and theories about agglomeration

Agglomeration

There are important differences within the advanced and the backward countries

Agglomeration of economic activity does not coincide with national boundaries

In Europe important gaps in income per capita at regional and at sub regional level

The territorial shape of unbalances is different in each country

Page 8: Agglomeration Facts and theories about agglomeration

Agglomeration

Differences in income per capita are often associated with differences in the variables related to the labour market

Low income per capita countries are often countries with higher rates of unemployment, and of lower rates of employment

Page 12: Agglomeration Facts and theories about agglomeration

Agglomeration

And low per capita income regions are often regions with lower rates of employment and higher rates of unemployment

Page 16: Agglomeration Facts and theories about agglomeration

Agglomeration

But keep in mind that this relation is far from being perfect because…

Labour markets have strong national specificities due to the national institutional context and regulations and because …...

the employment content of economic growth can vary

Page 17: Agglomeration Facts and theories about agglomeration

Agglomeration

Spatial unbalances in economic activity are also associated with unbalances in the endowment or availability of other important public goods (again with important exceptions) which affect the well being of people

Yes, there are good reasons why we should worry about agglomeration

Page 18: Agglomeration Facts and theories about agglomeration

Agglomeration

Is there any long run tendency towards convergence of levels of income per capita?

It is difficult to answer. At global level and in the long run the answer is probably positive. Look at the video which shows the long run correlation between health and GDP per capita at global level.

Page 20: Agglomeration Facts and theories about agglomeration

Agglomeration

At European level, a tendency towards convergence after the second world war can be detected at national level

Looking at the last decade, some backward European countries have grown very fast and narrowed dramatically the gap with the advanced countries

Page 21: Agglomeration Facts and theories about agglomeration

Agglomeration

Growth however in these countries has often been spatially very unbalanced

Backward regions in the backward countries have grown more than all regions in advanced countries but much less than advanced regions of their own countries

Page 22: Agglomeration Facts and theories about agglomeration

Agglomeration

The impact of the present economic crisis has been felt by all countries

However it hit different countries in different ways

It is very difficult to forecast how and when the various countries will emerge from the present crisis

Page 23: Agglomeration Facts and theories about agglomeration

Real GDP growth rate - % change on previous year

geo\time 00-07 2007 2008 2009 2010 2011 2012 2013

EU (27 countries) 17,00 3,2 0,3 -4,5 2,0 1,7 -0,4

United States 17,98 1,9 -0,3 -2,8 3,0 1,8 2,8 1,9

Belgium 14,67 2,9 1 -2,8 2,3 1,8 0,1

Bulgaria 49,51 6,4 6,2 -5,5 0,4 1,8 0,8

Czech Republic 39,71 5,7 3,1 -4,7 2,5 1,8 -1,0

Denmark 12,41 1,6 -0,8 -5,8 1,4 1,1 -0,4

Germany 10,98 3,3 1,1 -5,1 4,0 3,3 0,7 0,4

Estonia 72,08 7,5 -3,7 -14,3 2,6 9,6 3,9

Ireland 44,24 5,2 -3 -7 -1,1 2,2 0,2

Greece 35,34 3 -0,2 -3,3 -4,9 -7,1 -6,4

Spain 29,27 3,5 0,9 -3,7 -0,2 0,1 -1,6

France 14,87 2,3 -0,1 -2,7 1,7 2,0 0,0

Italy 10,33 1,7 -1,2 -5,1 1,5 0,5 -2,5

Cyprus 31,83 5,1 3,6 -1,9 1,3 0,4 -2,4

Latvia 92,18 9,6 -3,3 -17,7 -1,3 5,3 5,2

Page 24: Agglomeration Facts and theories about agglomeration

Real GDP growth rate - % change on previous year

geo\time 00-07 2007 2008 2009 2010 2011 2012 2013EU (27 countries) 17,00 3,2 0,3 -4,5 2,0 1,7 -0,4

United States 17,98 1,9 -0,3 -2,8 3,0 1,8 2,8 1,9

Lithuania 56,6 9,8 2,9 -14,8 1,6 6,0 3,7

Luxembourg 29,5 6,6 0,8 -5,3 3,1 1,9 -0,2

Hungary 24,9 0,1 0,9 -6,8 1,1 1,6 -1,7

Malta 11,7 4,3 4,3 -2,6 3,3 1,7 0,9

Netherlands 13,8 3,9 1,8 -3,5 1,5 0,9 -1,2

Austria 15,9 3,7 1,4 -3,8 1,8 2,8 0,9

Poland 28,4 6,8 5,1 1,6 3,9 4,5 1,9

Portugal 8,1 2,4 0 -2,9 1,9 -1,3 -3,2

Romania 42,9 6,3 7,3 -6,6 -1,1 2,2 0,7

Slovenia 30,7 6,9 3,6 -8 1,3 0,7 -2,5

Slovakia 43,5 10,5 5,9 -4,9 4,4 3,0 1,8

Finland 22,8 5,3 1 -8,2 3,4 2,8 -1,0

Sweden 21,1 3,3 -0,6 -5,2 6,6 2,9 0,9

United Kingdom 20,5 3,5 -1,1 -4,4 1,7 1,1 0,3 1,9

Page 25: Agglomeration Facts and theories about agglomeration

Reg

iona

l GD

P ch

ange

bet

wee

n 20

00 a

nd 2

008

Page 26: Agglomeration Facts and theories about agglomeration

Reg

iona

l GD

P ch

ange

bet

wee

n 20

00 a

nd 2

007

Page 27: Agglomeration Facts and theories about agglomeration

Agglomeration

There are various theories to explain why economic development produces inherently spatial economic unbalances

One of the most recent and debated theories is the New Economic Geography

The first contribution of this school of thought is due to Paul Krugman in 1991

Page 28: Agglomeration Facts and theories about agglomeration

Agglomeration

The issue of the Neg is to explain the formation of a large variety of economic agglomerations in the geographical space

The novelty of the Neg is to explain agglomeration within a framework of general economic equilibrium, that is to explain agglomeration and dispersion within the same model

Page 29: Agglomeration Facts and theories about agglomeration

Agglomeration

The model analyses simultaneously the centripetal and the centrifugal forces of economic activity

Three key hypotheses of the model:– positive transport costs– increasing returns to scale and monopolistic

competition– factor mobility

Page 30: Agglomeration Facts and theories about agglomeration

Agglomeration

The Neg shows that the interaction between economies of scale, transport costs and factor mobility may produce concentration of economic activity

The higher are increasing returns to scale, the lower transports costs and the higher the share of mobile factors of production, the higher the probability of agglomeration

Page 31: Agglomeration Facts and theories about agglomeration

Agglomeration

The model is circular: once the process of agglomeration has started, it tends to reproduce and to reinforce

The sketch of the modelThe firm must decide where to localize its

plant on the basis of three parameters: fixed cost of setting a new plant, transport cost and share of immobile resources

Page 32: Agglomeration Facts and theories about agglomeration

Agglomeration

Basic assumptions– Two regions: East and West– Two sectors: agriculture and manufacturing– Firms and workers in the agriculture sectors

cannot move– Firms and workers in the manufacturing sector

can move

Page 33: Agglomeration Facts and theories about agglomeration

Agglomeration

– Manufactured goods can be produced in either or both locations

– There is a positive set up cost for each manufacturing plant

– If a manufactured good is produced in only one location, trade costs must be incurred to serve the other market

Page 34: Agglomeration Facts and theories about agglomeration

Agglomeration

If a manufactured good is produced in two locations, the set up cost doubles

Page 35: Agglomeration Facts and theories about agglomeration

Agglomeration

A numerical example

Page 36: Agglomeration Facts and theories about agglomeration

Krugman

Assumptions– Manufacturing labour force in each location is

proportional to the share of manufacturing of that location

– Demand is strictly proportional to the labour force

– Total demand for manufacturing is 10– Labour force in agriculture 60%, in

manufacturing 40%

Page 37: Agglomeration Facts and theories about agglomeration

Krugman

Therefore total demand for manufacturing is 10 of which 6 from workers in agriculture (always 3 for each location) and 4 from manufacturing workers (from either or both locations)

The cost of transport per unit of production (t) is 1

The set up cost is 4 for each plant

Page 38: Agglomeration Facts and theories about agglomeration

Krugman

Distribution of manufacturing employment

Cost of typical firm if it produces in

East Both West

East only Fixed 4 8 4

Transportation

3 0 7

Total 7 8 11

Fifty-fifty split

Fixed 4 8 4

Transportation

5 0 5

Total 9 8 9

West only Fixed 4 8 4

Transportation

7 0 3

F=4 t=1 %40

Total 11 8 7

Page 39: Agglomeration Facts and theories about agglomeration

Krugman

Distribution of manufacturing employment

Cost of typical firm if it produces in

East Both West

East only Fixed 6 12 6

Transportation

3 0 7

Total 9 12 13

Fifty-fifty split

Fixed 6 12 6

Transportation

5 0 5

Total 11 12 11

West only Fixed 6 12 6

Transportation

7 0 3

F=6 t=1 %40

Total 13 12 9

Page 40: Agglomeration Facts and theories about agglomeration

Krugman

Distribution of manufacturing employment

Cost of typical firm if it produces in

East Both West

East only Fixed 4 8 4

Transportation

4.5 0 10,5

Total 8,5 8 14,5

Fifty-fifty split Fixed 4 8 4

Transportation

7,5 0 7,5

Total 11,5 8 11,5

West only Fixed 4 8 4

Transportation

10,5 0 4,5

F=4 t=1,5 %40

Total 14,5 8 8,5

Page 41: Agglomeration Facts and theories about agglomeration

Krugman

Distribution of manufacturing employment

Cost of typical firm if it produces in

East Both West

East only Fixed 4 8 4

Transportation

4,5 0 5,5

Total 8,5 8 9,5

Fifty-fifty split

Fixed 4 8 4

Transportation

5 0 5

Total 9 8 9

West only Fixed 4 8 4

Transportation

5,5 0 4,5

F=4 t=1 %10

Total 9,5 8 8,5

Page 42: Agglomeration Facts and theories about agglomeration

Agglomeration

Main conclusions of the model– The choice of location of a firm will depend on

the location of other firms– Other things being equal, the firm has the

convenience to locate in the bigger market to exploit increasing returns and save transport costs.

Page 43: Agglomeration Facts and theories about agglomeration

Agglomeration

– The choice of the firm to locate in the bigger market, will make that market bigger, and a bigger market will attract new firms starting a circular process towards the concentration.

Page 44: Agglomeration Facts and theories about agglomeration

Agglomeration

– Agglomeration is only a possibility. Whether agglomeration will take place or not depends on the relative values of transport costs, fixed costs, share of immobile population. High transport costs and an high share of immobile population are an obstacle for agglomeration while high fixed costs are an incentive for agglomeration

Page 45: Agglomeration Facts and theories about agglomeration

Agglomeration

– There are then multiple equilibria. You can find equilibrium producing manufacturing entirely in West, entirely at East or with two plants both at west and at east

Page 46: Agglomeration Facts and theories about agglomeration

Agglomeration

– You can also appreciate that when t=0 (no transport cost) the solution of one plant is always convenient. The world is flat. Spatial distance is irrelevant and the firm can locate the plant indifferently everywhere.

Page 47: Agglomeration Facts and theories about agglomeration

Agglomeration

Other centripetal and centrifugal forces play a role in the agglomeration and dispersion processes

Other centripetal forces:– Backward and forward linkages– External economies

Specialised providers of inputs Pooling of specialised labour force

Page 48: Agglomeration Facts and theories about agglomeration

Agglomeration

Complete and rapid flows of information and knowledge

Other features of the context: institutions, social cohesion, social capital, environment, public goods

Page 49: Agglomeration Facts and theories about agglomeration

Agglomeration

Centrifugal forces– Price effect– Congestion costs and diseconomies of scale– Share of immobile factors

Page 50: Agglomeration Facts and theories about agglomeration

Agglomeration and integration

Agglomeration and European economic integration

Expected positive effects of European economic integration

Cohesion policies, single market and European monetary Union

Potential spatial asymmetric effects of European economic integration

Page 51: Agglomeration Facts and theories about agglomeration

Agglomeration and integration

Integration may favour agglomeration because– It lowers trade costs– It increases the scope for increasing returns– It increases the mobility of factors of

production

Page 52: Agglomeration Facts and theories about agglomeration

Agglomeration and integration

The potential asymmetric effects of integration as a strong motivation for European cohesion policies

The historical link between cohesion policy on one side and single market and monetary unification on the other

Compatibility and complementarity between single market and cohesion policy at the heart of the European social model


Top Related