Studies have found that industries located in higher density areas are more productive due to factors like workers developing skills over time, higher wages providing more incentive, and knowledge spillover effects where the exchange of ideas stimulates innovation. However, large cities also face disadvantages like traffic congestion reducing productivity, pollution issues affecting health, and the potential for one city's decisions to negatively impact neighboring cities. For agglomerations to be successful, people must be able to benefit from their advantages while governments manage externalities in a way that is still beneficial to the overall economy.

1. Jason Tam

2.  Cluster of firms
 Productivity gains
 Lower transport cost
 Studies by Kawashima (1975) , Sveikauskas
(1975), Segal (1976), Forgarty and Garofalo
(1978) and Moomaw (1981, 1985)
 Positive effect of city size on labour
productivity levels

3.  Industries found higher density areas more
productive than lower density areas. Why?
 Allowed workers to develop skills over time
 Wages increase
 More incentive

4.  Higher education levels & better amenities
 First class medical facilities
 Sporting facilities
 Good public transport system
 Better roads
 Good schools, universities

5.  Knowledge spillover effect (Porter 1990)
 An exchange of ideas among individuals
 Stimulates growth in specialised and geographically
concentrated industries
 Local competition good for agglomeration economy
 Innovation!
 Maximised in cities where industries are centralised
and geographically specialised and competitive

6.  Traffic congestions
 Loss of productivity
 Eg. Los Angeles & Beijing

7.  Spillover effect
 When a government makes decisions to the benefit
of its own city but causes a negative externality to a
neighbouring city
 Emeryville, California

8.  Pollution
 Air, Water, Ground
 Developing countries
 Health issues

9.  Agglomeration is a natural phenomena &
unavoidable
 Often viewed as successful because advantages
outweigh disadvantages
 In my view, for agglomerations to work:
 People allowed to reap full benefits of advantages
 Government to manage negative externalities
 Beneficial to economy of agglomeration