Agglomeration Theory

1. AGGLOMERATION
THEORY
P L 5 1 0 3 S P A T I A L E C O N O M I C S
G R O U P 7
2 5 4 2 2 0 4 3 - Z U H A L L F I A K B A R R I N D A I
2 5 4 2 2 0 4 5 - M O H A M M A
D
F I R Z A T S H I N D I
2 5 4 2 2 7 0 1 - A B D U L L A H S A E E D A L I B A S E H A M
School Of Architecture, Planning, And Policy
Development Institut Teknology Bandung

2. Abdullah
25422701
Mohammad F.
25422045
Zuhallfi Akbar Rinda
25422043
GROUP 7- PRESENTERS
School Of Architecture, Planning, And Policy
Development Institut Teknology Bandung

3. School Of Architecture, Planning, And Policy
Development Institut Teknology Bandung

4. TABLE OF CONTENT
08
Balassa Index
09
The Silicon Valley
07
level of
Agglomeration
01 02 03 04 05 06
Introduction Definition
and Concept
Type of
agglomeratio
n economies
benefits of
agglomeratio
n
Impacts of
Agglomeratio
n
Scale of
Agglomeratio
n
School Of Architecture, Planning, And Policy
Development Institut Teknology Bandung

5. Introduction
Agglomeration refers to the clustering of firms together in a
particular geographic area. Agglomeration economies
describe the mechanisms that cause employees and firms
to co-locate geographically. Agglomeration economies
occur when a number of firms producing similar or
complementary goods locate near one another, which, in
turn, produces positive externalities for those firms (Porter,
1998).

6. Definition and
Concept
Marshall (1890)
Alfred Marshall, in his book Principles of Economics, published in
1890, described agglomeration
industries in particular localities"
Alfred Weber 1909
as a "concentration of specialized
Weber explicitly in his (industrial location theory) introduces the
concept of agglomeration as one of factor for determining a company
Location.
Montgomery 1988
adjacent locations (economies of proximity) associated with the
grouping of companies, labor, and consumers spatially to minimize
costs such as transportation, information and communication costs .
Markusen
agglomeration is a location that is "not easily changed" due to external
savings that are open to all companies that are located close to other
companies and service providers, and not due to calculations by
companies or workers.

7. 01 02 03
infrastructures (e.g. utilities or public
transit), the availability and diversity of
labor, and market size
Urbanization economies
Benefits derived from the agglomeration
of population, namely common
Industrialization economies
Benefits derived from the agglomeration of
industrial activities, such as being their
respective suppliers or customers. This
favors the emergence of industrial clusters.
Source
https://transportgeography.org/contents/chapter2/transport-
and-location/agglomeration-economies/
Localization economies
Benefits derived from the agglomeration of
a set of activities near a specific facility,
such as a seat of government (lobbying,
consulting, law), a large university
(technology parks), or retail store in a mall.
TYPE OF AGGLOMERATI
ON
ECONOMIES
There are two primary types of agglomeration economies: those that result from
industry concentration (Industrialization economies) or any activities near a specific
facility (localization economies) and those that result from the density of economic
activity in an area (urbanization economies) (Cohen, et al., 2008).

8. THE REASON WHY I
T SHOULD BE AGLOMERATE
The reasons for agglomeration can be divided into three main categories
Matching (Labor market pooling)
larger cities have a larger labor pool which makes it easier for
firms to find qualified workers and Skilled and trained workforce
rare ones can be hired on location by various companies
Sharing (Local Input Sharing)
One benefit of agglomeration is the capacity to share sharing
input, supply chain and infrastructure. and also share
production inputs with others similar company in that location
Learning (Information spillovers)
One of the primary benefits of agglomeration is that it decreases
the cost of generating new ideas and exchanging information
and Important information can be used together at that location
SOURCE: CENTRE FOR CI
TI
ES

9. I
MPACTS OF
AGGLOMERATION
These companies can use shared facilities which will be
more cheap when used together, For example: shared toilet,
shared cleaning service, shared canteen, joint repair service
etc
The cost of purchasing for each company becomes lower, By
gathering companies in one location then transportation
costs per unit will be lower, For example, one cellphone
truck only needs to go to one location there is BEC, if the
stores are spread out then it should be go to various places

10. SCALE OF
AGGLOMERATION
It is often assumed that agglomeration
economies operate at the “metropolitan level.”
However, cities are not monocentric, but rather
polycentric and the effects of agglomeration are
not uniform across cities. Rather, within cities
there may be multiple agglomeration clusters
(Agarawal et al., 2012).
Agglomeration occurs at many different
geographic levels (Giuliano & Yuan, 2019).

11. Geographical Agglomeration
an Agglomeration of businesses in a geographical
location where enough resources have accumulated
to give a competitive advantage to businesses in a
given economic branch.
Horizontal Agglomeration
are built between businesses that compete for the
same market, e.g. multiple producers combing to
establish a retail shop.
Sectoral Agglomeration
an Agglomeration of businesses operating together
from within the same economic sector e.g. Silicon
Valley.
Vertical Agglomeration
are alliances between businesses which belong to
different levels of the same supply chain.
LEVEL OF AGGLOMERATION

12. SILICON VALLEY
Start up
In the mid-to-late 1990s, several successful computer technology-
related companies emerged in Silicon Valley in California. The surge in
the number of Silicon Valley startups led to a number of venture
capital firms relocating to or expanding their Valley offices. This in turn
encouraged more entrepreneurs to locate their startups there.
In other words, venture capitalists (sellers of finance) and dot-com
startups (buyers of finance) "clustered" in and around a geographical
area.
Labor Market
The cluster effect in the capital market has also led to a cluster effect
on the labor market. As more companies started up in Silicon Valley,
programmers, engineers etc. realized that they would find greater job
opportunities by moving to Silicon Valley.

13. AGGLOMERATION CALCULATION
where:
i = Sector
j = Territory
E= Labor
The Balassa Index is used to calculate agglomeration. The uniqueness of
this index is can be used to distinguish factor specialization exports which is
represented by labour. The quantifier of this index represents the sub-region of the total
workforce in manufacturing industry sector. The more centralized an industry is, the
greater its Balassa index (Sbergami, 2002)
The more concentrated an industry is, the greater the ballast index.
Agglomeration is said to be strong if the valuer is Bij> 4
Agglomeration is said to be moderate if the value is 2 < Bij < 4.
Agglomeration is said to be weak if the value is between 1 < Bij < 2.
Agglomeration is said to be none if the value is 0 < Bij < 1.

14. EXAMPLE OF AGGLOMERATION
Sydney - New South Wales
Unites stater- Silicon Valley
Unites stater- Wall Street
Source :https://wallpaperset.com
Indonesia - Bakasi -Industrial Estate

15. THANK YOU
G R O U P 7
School Of Architecture, Planning, And Policy
Development Institut Teknology Bandung