There are two types of agglomeration economies: localization economies and urbanization economies. Localization economies arise from having many firms in the same industry located near one another, while urbanization economies arise from having many people located together regardless of industry. Being located near other firms or people provides scale advantages like access to a large pool of skilled workers, shared infrastructure and services, and lower transportation costs. Some cities that demonstrate strong agglomeration in specific industries include Surat for diamonds and textiles, Morbi for ceramics, and Namakkal for transportation. While agglomeration provides economic benefits, it can also result in congestion, pollution, crime and high rents.

1. ECONOMICS OF
AGGLOMERATION
Department of Architecture
Land economics
Guided By , Prepared By ,
Dr. Jayant Kumar Miral B. Kaloliya
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2.  Most important economies of scale for urban economics is
called Agglomeration
 An agglomeration economy exists when production is cheaper
because more activity is going on nearby
 Two types of agglomeration economies:
 Localization Economies
 Economies of scale that arise from have many firms in the same industry
locate near one another
 Urbanization Economies
 Economies of scale that arise from having many people located together,
regardless of the industry in which they work.
WHAT IS AGGLOMERATION?
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3. Localization Economies
 The benefit from the concentration of same-industry firms in a city (economies of
scale external to a firm but internal to an industry)
 Fro example iron and steel industry can be establish with the Engineering , ship and
car making.
Iron and
steel plant
Engineering
Ship
building
Car making
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4.  The benefit from the concentration of different-industry firms in a
city (economies of scale external to an industry but internal to a city)
Urbanization Economies
Interdependent
Chemical plant
Textile
industry
Electronics
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5.  What are intermediate inputs?
 Things used to make other things – Screens used to make
Televisions, Engines used for Cars.
 There are economies of scale associated with having all these
‘intermediate inputs’ located nearby.
 It is cheaper to make TVs when the screens don’t have to be shipped
long distances (ex of Localization Economies)
INTERMEDIATE INPUT
ECONOMIES OF SCALE
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6.  Benefits from the concentration of workers (employment)
in cities. Such benefits increase workers’ productivity and
therefore wages
 Labor market localization economies: Benefits from
concentration of workers in the same industry (occupation) in a
city.
 Labor market urbanization economies: Benefits from
concentration of workers in different industries (occupations) in
a city.
LABOR MARKET AGGLOMERATION
ECONOMIES
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7.  Positive impact on manufacturing, transport, storage, and
communication, and other services sectors, in varying magnitudes.
POSITIVE OF AGGLOMERATION
Inter-plant transport saving
Access to common pool of skilled labor
Presence of special training institutions
Presence of ancillary services
Research and development of collective facilities
Sharing cost of certain operation
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8. (1) Agriculture
(2) Fishing
(3) Mining and Querying
(4) Manufacturing Registered
(5) Manufacturing Unregistered
(6) Construction;
(7) Electricity, Gas, and Water supply
(8) Railways
(9) Transport, Storage, Communication
(10) Trade, hotels, and restaurants
(11) Banking and insurance
(12) Real estate, ownership of dwellings, and business services
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POSITIVE IMPACT SECTOR

9.  Are some negative consequences associated with clustering:
 Congestion
 Pollution
 Disease
 Crime
 High Rents
NEGATIVE IMPACT
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10. Indian city are some example of the Agglomeration of Economic
 Surat – Gujarat (Diamond and Textile Industry),
 Morbi – Gujarat (Ceramic Industry),
 Namakkal – Karnataka (Transportation Industry)
 Tripur – Karnataka (Knitwear Industry)
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EXAMPLE OF AGGLOMERATION

11.  Bhagat, R B. 2003. Urbanization in India: a Demographic
Reappraisal. International Union for Scientific Study of Population,
p.p.1-17.
 Bostic, R. 1997. Urban productivity and factor growth in the late
19th century. Journal of Urban Economics, 4, p.p. 38-55.
 Carlino, G.A. 1979. Increasing Returns to Scale in Metropolitan
Manufacturing. Journal of Regional Science, 19, p.p. 363-374.
 Ciccone, A. & R. Hall. 1996. Productivity and the density of
economic activity. American Economic Review, 86, p.p. 54-70.
REFERENCES
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12. Thank you
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