Urban form and agglomeration economies – the impact of “edge cities”

Last week, I took a look at the contribution of agglomeration to Auckland’s recent economic growth. Based on observed changes to employment density over the period, plus agglomeration elasticities calculated by David Maré and Daniel Graham, I estimated that 11-12% of Auckland’s recent productivity growth was due to increased urban scale and density.

The gains from agglomeration since 2000 are significant: Auckland’s GDP is approximately $1.4 billion larger as a result. Ultimately, productivity gains are good for everyone. If you’re retired, they help to pay your pension. If you’re in school, they help pay your teachers and living costs. In between, they help fund your health care and pay for your neighbourhood library.

But is agglomeration simply a consequence of urban scale, or does urban form also matter? In other words, are there any reasons that we should prefer one distribution of employment within cities to another?

Interesting question.

There are a couple of ways we can address it. One would be to gather data on the spatial distribution of employment in a range of cities, and examine the impact on productivity. This is, implicitly, what Maré and Graham (and other economists studying productivity) have done by measuring effective job density and productivity at a highly detailed level and comparing outcomes within and between cities.

Other papers use a slightly different methodology but also come up with suggestive results. For example, a 2014 paper by Daniel Chatman and Robert Noland finds that public transport provision can encourage agglomeration economies in dense city centres. From the abstract:

Using data on US metropolitan areas, this paper traces the links from transit service to central city employment density, urbanised area employment density and population; and from these physical agglomeration measures to average wages and per capita GMP. Significant indirect productivity effects of transit service are found. For example, in the case of central city employment density, estimated wage increases range between $1.5 million and $1.8 billion per metropolitan area yearly for a 10 per cent increase in transit seats or rail service miles per capita. Firms and households likely receive unanticipated agglomeration benefits from transit-induced densification and growth, and current benefit–cost evaluations may therefore underestimate the benefits of improving transit service, particularly in large cities with existing transit networks.

Another approach would be to simulate the impact of alternative employment distribution on effective density and hence on productivity. Last week, I looked at how Auckland’s job density had changed from 2000 to 2015. This week, I’m also going to consider a simple simulation: What if the city had grown in a different way between 2000 and 2015?

According to Stats NZ’s Business Demography data, Auckland added approximately 174,000 jobs – a 33% increase – over this period. Here’s a chart showing how they were distributed at a local board level. Waitemata local board added the most jobs (almost 41,000) followed by Upper Harbour (22,000) and Howick and Maungakiekie-Tamaki (both around 19,000).

By contrast, the rest of the isthmus and lower North Shore saw exceptionally low rates of change. (A pattern that is matched in population growth: high growth in the city centre, Howick, and Upper Harbour, where planning rules have enabled growth, and low growth in other areas where they’ve prevented it.)

Auckland employment change by local board 2000-2015 chart

But what if Auckland’s recent employment growth had followed a different pattern? For example, what if we’d chosen to decentralise employment growth to a new “edge city”?

Let’s set aside, for a moment, the fact that creating new employment centres by planning fiat tends to disappoint. (As demonstrated by Manukau’s underwhelming history, and possibly also the new NorthWest mall.) If businesses don’t see an advantage in locating there, it won’t happen.

As a benchmark, consider a new “edge city” in Drury, which is currently a set of paddocks that are conveniently located along the Southern Motorway and the unelectrified portion of Auckland’s Southern Rail Line. Let’s assume that we succeeded in relocating a bit over 25% of Auckland’s recent employment growth to Drury – creating a new employment centre with 50,000 jobs. (Around half the size of the Auckland city centre.) All other areas of Auckland would have seen proportionately lower rates of growth.

What would that do to the city’s potential for agglomeration?

Here’s a map comparing the effective density of employment under this “edge city” scenario with the actual effective density of employment in 2015. (Remember, effective density is a measure of an area’s potential for agglomeration economies, as areas that are accessible to more jobs are likely to be more productive.)

Areas shaded in yellow would experience reductions in agglomeration potential, while areas in green and blue would be more accessible to jobs under the “edge city” scenario. Notice how most of the city is coloured yellow. The only places to benefit from this change are the areas immediately around Drury.

Auckland effective density edge city scenario

Overall, the job density gains around Drury are far outweighed by the “deglomeration” experienced by the rest of the city. Shifting employment growth to an “edge city” in Drury would have reduced the city’s overall job density by 9%. (In 2015, the average Auckland employee was accessible to around 92,000 other jobs. Under the “edge city” scenario, they’d only be accessible to around 84,000 jobs.)

This would in turn reduce the city’s economic productivity. Based on Maré and Graham’s measured agglomeration elasticity of 0.065, I estimate that Auckland’s productivity would be 0.6% lower under the “edge city” scenario. (Again, using an arc elasticity formula: (92,000/84,000)^0.065-1.)

Because Auckland’s GDP was $88.3 billion in 2015, the productivity losses from deglomeration would equate to roughly half a billion dollars a year. That’s a lot of money. For comparison’s sake, $0.5 billion is roughly equivalent to:

Of course, more centralisation is not always optimal. In a large city, there are good reasons for businesses to spread themselves around a bit. Retailers want to be close to local shoppers, warehouses want to be on cheap land close to transport infrastructure, and so on and so forth. And, from a policy perspective, adding peak transport capacity to enable existing centres to grow may be costly.

But, as this simulation of a Drury “edge city” shows, forcing decentralisation is likely to be highly sub-optimal. Auckland would be less productive if it had chosen to push employment growth into outlying centres, rather than accommodating it in the city centre and other locations throughout the city. Over time, that would translate into lower competitiveness for local businesses, lower wages for Auckland workers, lower living standards for residents, and worse public services and infrastructure.

Do you think urban form can contribute to a productive, happy city?

54 comments to Urban form and agglomeration economies – the impact of “edge cities”

  • What good are the productivity gains you refer to, when the same process is also responsible for cost increases that outweigh those benefits?

    Affordable living is now something you achieve by leaving Auckland.

    • Peter Nunns

      Cities offer economic and social advantages for those who live in them. There are diseconomies as well, such as higher prices and congestion, but smart policy can maximise the benefits and minimise (or mitigate) the costs. That means stuff like:
      * Allowing new housing to be built in accessible places, keeping housing and transport costs down
      * Building a multi-modal transport system so that people don’t have to drive everywhere (and participate in congestion)
      * Not inadvertently reducing the city’s productive potential through silly policies to decentralise work.

      The last one’s especially important. I’ve looked at a scenario in which Auckland’s population doesn’t change – i.e. we still are dealing with all the same diseconomies of city size – but the economic benefits associated with city size are considerably lower. This is the sort of scenario we should seek to avoid.

      Lastly, given your constant refrain about the downsides of urban growth, I recommend you move somewhere else where you will be happier. It’s probably not good for you to focus on negative emotions.

      • Angus Robertson

        Where could he go? What place has had a greater relative reduction of urbanisation than Auckland in the last 5 years?

        • Sailor Boy

          Gisborne and Whanganui both lost population.

          • Angus Robertson

            Whanganui and Gisborne were also declining prior to the GFC. Whereas Auckland was doing urbanising very quickly prior to the GFC, but afterward has not reached the same highs.

      • No negative emotions Peter. But yes, when it comes time to buy a house, I will go outside Auckland, as buying a house in Auckland is no longer financially viable. As Angus has pointed out, house prices in Wanganui and Gisborne are declining (and in many other areas as well), and in some areas house prices are in the five digits. That’s a measure of success that Auckland doesn’t seem to be achieving. So much for economies of scale!

        • I hope you have a very transferable skill set that will work in a small town economy. Or you can work remotely with companies in the big cities. Or you are planning to retire.

          When I came back to NZ and went out to small town NZ looking for a job, it was grim. There was just nothing available and frankly employers seemed put off by international, high level experience.

          I gave up after the 3rd employer didn’t even bother to get back to me after the interview.

    • Angus Robertson

      It is not the same process, agglomerative growth does not cause unaffordability – quite the opposite when it is allowed to occur agglomerative growth can create greater affordability. Melbourne and Brisbane have in the past 4 years constructed enough new dwellings in central areas that rents are starting to fall, in 2018 they are going to be moving to a housing surplus.

      Auckland is the opposite, unlike Melbourne and Brisbane, Auckland does not allow greenfield growth to agglomerate around the city and has housing costs expected to keep on rising for the next decade.

      • “It is not the same process, agglomerative growth does not cause unaffordability”

        No, but the process of agglomeration is utilised where supply & demand push up the prices of everything. They occur hand in hand, and my point is that agglomeration benefits are insufficient to cancel out those supply & demand high prices.

        In other words, places of little demand do a better job at keeping costs down, than places of high demand that are trying to cut those costs through agglomeration economies, and seriously losing the battle.

        That’s why Auckland is expensive, and Taumarunui is cheap. The economies of scale that large cities are supposed to offer, don’t amount to a hill of beans.

        • Stu Donovan

          Geoff is wrong.

          He talks about cost, but fails to mention that wages are higher in cities too. He also fails to acknowledge that cities provide a whole host of socio-economic benefits, e.g. cultural, social, and educational services, which might be capitalized into higher housing prices. But these prices will be higher because someone (let’s call them Bruce Blackmore) is willing to pay that cost to access those services, i.e. they consider the trade-off worthwhile.

          If it was true that cities like Auckland offered a lower quality of life, then they wouldn’t be growing. Truth is, cities most places in the world are growing gangbusters and have done for decades. Reason being that their many and varied benefits tend to exceed their costs for most people.

          Funny thing is I personally don’t mind if people don’t like living in cities and push-off to live in the wops. Best of luck to them. But I do mind when people like Geoff try and tell everyone else that cities are failing. They’re obviously not, because they are where almost everyone wants to live. Geoff seems to make the classic mistake of placing himself at the centre of the universe and assuming that we all experience the world how he does.

          The reality is that most of us have more favourable experiences of cities, and hence most of us want to live in them.

  • Early Commuter

    Well, Peter…

    We know that money is a proxy for utility – and it’s utility not money that is the true focus of economics.

    When we use measures like GDP or GMP, we are focusing on changes in *money* not changes in *utility*

    And it’s easily possible that even if all of your calculations were perfect, that the *money* losses from deglomeration would be outweighed by *utility* gains from a better standard of living.

    • Stu Donovan

      Last time I looked (today) economics was a social science which focuses on understanding people’s choices, and how these choices impact on people’s well-being, or welfare.

      This analysis is particularly interesting/difficult when people are making choices in the presence of time/budget constraints. Welfare changes are ***usually*** (not always) estimated in monetary terms, because people’s budget constraint is defined in monetary terms (NB: Time is a separate issue, although aspects of time can also be monetized). And it is peoples monetary budget constraint which forces a lot of difficult and interesting choices. E.g. pay less to live further out, or pay more to live centrally. Work centrally and earn more but endure more difficult housing/transport choices, or live work remotely and earn less.

      Monetary values are also useful for for comparative purposes, i.e. we can compare the value of choice A to choice B. To quote from wiki: “In economics, a consumer’s indirect utility function v(p, w) gives the consumer’s maximal attainable utility when faced with a vector p of goods prices and an amount of income w. It reflects both the consumer’s preferences and market conditions.”

      GDP is measured in monetary terms. It is not, however, a measure of welfare. And no economist would argue it was. Instead, it simply measures of the value of flows in an economy for a particular time period. GDP is however extremely important from a macro-economic and fiscal perspective. In terms of macro-economics, GDP is highly correlated with changes in things like wages and unemployment, which seem to to be strongly linked to people’s welfare. And from a fiscal perspective, GDP is a key determinant of tax streams, as such it tends to define how much the government can spend on different things.

      In terms of agglomeration, it makes quite a lot of sense to analyse it in terms of productivity, i.e. GDP, because this is a directly affected economic channel. Now GDP doesn’t measure welfare per se. but you don’t have to join many dots to get from productivity to incomes, however, which is strongly connected to welfare for the reasons I’ve outlined above. Also the link between GDP and tax revenues, and hence government spending, is also fairly direct. So government spending is supported by increased GDP.

      Finally, you say “it’s possible … that the money losses from deglomeration would be outweighed by the utility gains from a better standard of living”?

      Can you elaborate a little more? In particular how 1) “standard of living” is related to people’s welfare and 2) how SOL might be measured?

      • Roger W

        “you don’t have to join many dots to get from productivity to incomes”

        Hmm, can I ask ..

        Whose productivity?
        Whose incomes?
        Whose welfare?
        Whose costs?

        I suspect those are very difficult to answer accurately, but that the first two and the second two are not aligned.

        • Stu Donovan

          Hi Roger,

          You ask about “whose” productivity, welfare, incomes and costs. My answer to that is “people” is an aggregate sense.

          I don’t know about agglomeration’s distributional impacts. However I do note that higher productivity leads to higher profits and higher wages, which ultimately can be expected to be reflected in increased employment, higher incomes, and increased taxes.

          So even if someone doesn’t benefit from agglomeration directly, i.e. get a white-collar job downtown, they may still benefit from the associated productivity effects, especially once tax-funded government transfers are accounted for. Tony Venables wrote a nice paper which analysed the agglomeration tax wedge, which we adapted to public transport interventions in this paper:

      • Early Commuter

        There is zero correlation between national GDP (or national GDP per capita) and surveys of social happiness the world over.

        Utility != money

        • Happiness surveys are not perfect measures of utility either. Like GDP (and various other dimensions and social statistics), they should be thought of as contributing to our understanding of utility, or as being one of its dimensions.

        • stu donovan

          Can you provide some evidence that there’s zero correlation between GDP and happiness? I’d be interested to see that.

        • stu donovan

          Just going to leave this here for the benefit of EC:

          • Stu Donovan

            And the comment associated with that chart:

            “DISMAL scientists who look at happiness often contend that, beyond a GDP per capita of just $15,000 (measured at purchasing-power parity), money does not buy happiness. Up to that point the correlation between the two is strong, but thereafter it falls away. If this is true then some heretical conclusions follow: rich America is no happier than poorer Brazil, so what is the point in people who live in rich countries working harder to get ever richer? Politicians should concentrate on maximising the mental health of their voters, rather than the size of their pay cheques. But plot the data another way, on a logarithmic scale where each increment represents a 100% increase in income per head, and the relationship between wealth and happiness looks more robust.”

          • Stu Donovan

            And another more interest set of analyses:

            Conclusion still the same: GDP is strongly correlated with life satisfaction measures.

            So Peter’s post seems to be suggesting that agglomeration increased Auckland’s relative economic productivity, and in turn this led to benefits in the form of higher wages, more employment, and greater tax revenues.

          • Peter Nunns

            Yeah, that’s a really interesting chart. EC seems to have fallen into a classic analytic pitfall: unwittingly assuming a particular functional form for a relationship and ignoring the possibility of alternative relationships.

            If there’s a (causal) log-linear relationship between GDP per capita and life satisfaction, that implies that a (say) 2% increase in income “buys” you roughly the same amount of happiness at any income level. However, the potential for more rapid percentage growth in GDP is greater for poor countries that are further away from the technological frontier. For example, Ethiopia’s annual real GDP growth has been above 8% over the last decade and a half, while no developed country has done much better than 3%.

            So it might still be the case that economic growth is more important for raising wellbeing at low levels of income – you can make much more dramatic gains starting from the bottom. At higher levels of income, there may be other margins to pursue instead…

      • Just going to pipe in
        Economics is indeed a Social Science

        It along with Planning (for the most part) is a sub field of Human Geography (economic geography, urban geography, population and health studies (use to be population geography)) along

        *Disclaimer: Am a Geographer

  • That increase productivity growth is nominal given we are in Negative Productivity

    Any way of course urban form can contribute to a productive happy city. A City where you can walk and cycle freely, catch mass transit without major worries, freight gets around efficiently and car is no longer king would go a long way to that happy productivity city.

    Going back to the edge City thing. Okay interesting with Drury given it is zoned for heavy industry which is looking at around 5,000 jobs in the next 10-15 years any how.

    Looking at the graph above:
    Upper Harbour has Albany Metropolitan Centre which is a recent “invention.”
    Howick has the East Tamaki and Highbrook industrial complexes (Highbrook also a recent invention)
    Tamaki – well that has the old Penrose-Southdown complex which is an extremely high demand area with industy

    So it seems our industrial areas have done really well outside of the City Centre.

    Ultimately forced decentralisation will not work for reason the blog post has shown.

    That said Panuku Development Auckland is starting with some 600ha of urban renewal in South.

  • Kleefer

    I’m sure the peasants living in Franklin and Papakura will be happy to continue commuting for 3-4 hours a day so they can prevent your dreaded “deglomeration”. Far from being forced, job decentralisation is due to market forces (lower costs, more people living on the urban fringe) and if anything is being held back by restrictive zoning and the RMA. Despite the spin of this blog, Auckland’s productivity figures are terrible (as Ben pointed out) and the theoretical gains in productivity are dwarfed by the massively increasing cost of living (as Geoff pointed out). While you drool over employment density, in the real world the obsession with cramming more people and jobs into the central city is ruining lives.

      • Stu Donovan

        Important note: agglomeration elasticities measure the net benefits of agglomeration ***after*** things like traffic congestion have been accounted for. So when Peter applies a figure of +5%, that represents the net impact of agglomeration on productivity accounting for congestion, at least insofar as it impacts on productivity.

        Unpriced externalities may or may not be accounted for depending on whether their primary channel is via productivity (arguably usually not).

    • Peter Nunns

      A rather vacuous objection. If there was market demand for a large (office) employment centre closer to Papakura and Franklin, Manukau centre is open for business! There’s nothing to stop people from working there, but that doesn’t seem to be happening in significant numbers.

      The implication of observed trends over the last decade is that it *would* be necessary to exercise some compulsion to shift employment growth out of the city centre.

      Furthermore, as I wrote in the previous post, agglomeration economies have made a significant contribution to Auckland’s GDP *on the margin*, but they don’t account for the majority of productivity growth.

      • But disingenuous there Peter given Franklin and Papakura-Takanini’s employment growth would be in industry not office (why do we forget industry in this blog as you are as bad as the Council is).

        As for Manukau being open for business? Well yes it is and she has done okay for a 60’s car centric Centre.

        But as I and Panuku have mentioned $72m is about to go into Manukau to turn it from a car centric centre to a People’s centre much like the main City Centre from the 90s through to now (and still on going) (surprised TB have not covered it yet)

        For wider FYI:
        May Panuku go back to Council for budget approval
        July the Transform Manukau Framework Plan goes to council for approval
        August: The IHP come back with their recommendations for the Unitary Plan.

        • Peter Nunns

          I modelled a scenario in which a bit under 50,000 jobs got added to a new employment centre in Drury over the last 16 years. This considerably exceeds the growth in industrial employment over this period. A significant share of these jobs would therefore have to be in white-collar occupations.

          • Kleefer

            Vacuous? It’s called living in the real world, not just staring at a spreadsheet and cherry-picking data that supports your conclusions. In a city not choked by regulation, jobs follow the people. In many US cities, the CBDs are small while the suburbs have more than 90 jobs for every 100 workers. These cities are among the wealthiest and most productive in the world and have short commute times and low house prices relative to incomes. Auckland allows massive housing developments on the fringe but zones insufficient amounts of industrial and commercial land, forcing people in these areas into big commutes and generally leading to misery. People in Franklin are leaving home at 5.30am to get to work now, but I guess it’s all worth it if we can keep the effective job density high.

          • Sailor Boy

            If you think those US cities are an example of what the free market would do then you haven’t heard of the Federal Highways Administration.

          • Nick R

            Kleefer, the likes of Manukau, Albany and Henderson have had zoning that allows massive job growth for decades now, like 40 story towers among other things. If we are living in the real world, which I think we are, then why have these areas not taken up the job growth? Last time I checked they were pretty empty.

    • Kleefer

      Nick R, you make the same mistake as Peter. Not everyone works in an office! Industrial land tends to locate on the fringes and it has been in short supply in Auckland for years, yet the council thinks it can solve the problem by “intensifying” the use of the land. These guys don’t have a clue and clearly neither do the people who write on this blog.

      • Sailor Boy

        There are many hectares of empty industrial land in Albany.

      • Peter Nunns

        Meanwhile in the real world, industrial jobs (ANZSIC C and I; manufacturing and logistics/distribution) account for 15% of Auckland’s employment. There has been no growth in industrial jobs over the last 16 years.

        Office-based jobs (ANZSIC codes J+) account for around 50% of the city’s employment and roughly 75% of the *growth* in employment over the last 16 years.

        You can go look at the numbers if you like. But I suppose you think that Stats NZ also in on the conspiracy.

      • Angus Robertson

        I agree the council don’t have a clue, but they are not trying to intensify Auckland.

        The Auckland Council policy is to make the cost of land in Auckland City increase, which increases the cost of intensification – a policy preventing of intensification, not facilitating of intensification. As a result Auckland has an extremely slow build rate of everything (but especially apartments).

        The fact that this appallingly awful council policy is also detrimental to industrial growth is not an indication they are specifically targeting industrial growth. In fact the price of industrial land in Auckland has grown slower than the other sectors, so whilst the policy has bad impacts on industry, it is less awfully bad than it is for say apartments.

        Auckland Council policy is anti-growth of everything, except land prices.

  • Angus Robertson

    Scarily if you were to substitute “housing growth” for “job growth” the idea of deglomeration* is not a “what if” scenario. We are carrying out this horrible plan today and if shifting growth to “Drury” would be bad what we are doing is even worse. The cost is real enough, we now lag all of Australasia in development, whilst experiencing a massive increase in debt and have a housing shortage that is nearly structural.

    Our council is forcing relocation of growth to Pukekohe, Kumeu, Silverdale and Warkworth – these are to grow 100 – 300% faster than ever before. We have stripped a vital element of growth from Auckland City – which is to grow 50% slower. Unlike your Drury scenario these exurbs are further away and produce an even greater force for deglomeration*.

    * nice frankenword usage.

    • Peter Nunns

      Cross-sectional data from cities seems to indicate that employment tends to decentralise slightly less rapidly than population. That attenuates the loss of agglomeration economies, but tends to increase congestion costs.

      What’s happened in Auckland over the last 16 years is a bit interesting, however. Population density has risen (regardless of whether you choose population-weighted or simple average measures), but growth in effective density of employment has been slightly *slower* than the city’s aggregate growth in employment. This implies that there may have been a very slightly centripetal trend in employment.

      It’s not a large difference, so it’s possible that it’s just a gremlin in the calculations. But it probably bears further consideration.

      • Angus Robertson

        Or pay attention to abhorrent cost structures forcing development away from the urban area. This has the advantage of being observable in real time and allowing corrective lobbying to be taken before it is too late.

  • mfwic

    A truly profound conclusion. Most of the job growth in the recent past occurred outside the CBD (add up the blue sticks on the graph) hence agglomeration is responsible for a big chunk of our growth and growth at the edges is bad.

    • Peter Nunns

      Nice set of straw men.

      Agglomeration economies don’t arise only in major centres (although there are some reason to expect some agglomeration economies, like knowledge spillovers, to be stronger in dense, walkable places). The modelling approach I’ve used here calculates the overall economic “mass” of the city as a function of its scale and spatial distribution of jobs. So it takes into account the contribution of growth in Albany etc.

      Following on that, I *didn’t* model a scenario in which we relocated jobs from Albany to the city centre. Arguably, if firms wanted to do that, they’ve already got the opportunity and incentives to do so. So it’s hard to argue that there would be substantial net benefits from requiring them to make that change.

      Instead, I modelled a scenario in which we relocated a significant amount of growth to a place that firms *don’t* seem to want to be – i.e. the rural south. As it turns out, this would be a large net negative for the city (and also for the firms that were forced to move).

      • mfwic

        It is the underlying assumption I have trouble buying- the one about agglomeration being responsible for growth. Seems more likely to me the growth occurred, it located in the best places it was allowed to, then years later you measured the resulting density and called that agglomeration.

        • Peter Nunns

          Economists studying this issue have been pretty careful to address the endogeneity between density and productivity. I’m pretty comfortable that there’s a causal effect. Of course, if you have specific research that contradicts that view, I’m willing to reconsider.

          • Why bother with research when his mates at the pub agree with him.

          • mfwic

            Peter can you suggest any books on economies of agglomeration. I very quickly get stuck with papers as authors seem to swap between density and size even though they are different and also between output and productivity even though they are different. And then there is Urbanistaion economies which some seem to define as the consumer end as opposed to Localisation covering the producer end. Yet others seem to use urbanisation economies to mean lower production costs due to increased production in other industries as opposed to in the same industry. Basically I am stuck on jargon.
            Goose GFYS – isn’t it terrible that some people try to think for themselves rather than your method of just believing what you read on the internet.

          • Peter Nunns

            Thanks for asking John! Two books I’ve found very useful are:

            Fujita, Krugman and Venables’ The Spatial Economy, which covers the new economic geography literature. While the theory in the book (new economic geography models) focuses mainly on effects related to city size, chapters 2 and 3 give a clear overview of the empirical and theoretical history of agglomeration economies, including the origin of different terms for similar concepts.

            Glaeser’s Cities, Agglomeration and the Spatial Equilibrium covers a broader range of urban economics topics, again with theoretical models to illustrate. Chapter 4 is particularly useful – it describes and models a number of different “micro-foundations” of agglomeration economies. Some of these relate to city size, while others also relate to urban density (which may affect the likelihood of people interacting and sharing knowledge within cities).

            With regards to your question about urbanisation vs localisation economies – the Wikipedia page is surprisingly clear. Localisation economies arise from colocation of firms within a *single* industry, while urbanisation economies arise from a *diversity* of firms. Historically, I’d observe that localisation economies can arise even in small cities – Krugman’s favourite example is Dalton, GA, a major centre of the US carpet industry with a current population similar to Hamilton.

            I don’t usually discuss urbanisation vs localisation economies as I think it’s more helpful to talk about the *processes* underpinning agglomeration – the Marshallian trinity of labour market pooling, supply-chain linkages, and knowledge spillovers – rather than trying to pinpoint exactly how individual industries may benefit.

          • mfwic

            Thanks for that Peter. The the wikipedia page on agglomeration details one but not the other. Pity it doesn’t link to the page you gave me. The definition of urbanisation these guys link to put me dead wrong.
            I guess the question I have is is it due to density or is it caused by total numbers? ie intensity or scale. An area can be small and dense or large and not dense. Silicon Valley isn’t dense but it is always given as an example of spillovers and common labour pool. The dude who spoke at IPENZ suggested up to 3 hours drive still had benefits. Even Boeing and Airbus get spillovers from each other. This stuff is important if we are trying to set policy for a city.

          • Peter Nunns

            “it due to density or is it caused by total numbers?”

            The best answer I can give you is “both, but economic models (and the resulting empirical work) have traditionally focused on effects arising from scale.” That’s one of the reasons I quite like Glaeser’s book – it’s got some simple models showing how density may improve changes of knowledge spillovers.

            One important point – which Krugman makes in this 2010 lecture, and which Glaeser explores in an insightful 2004 paper – is that today’s developed economies have moved beyond models that were novel three decades ago. In Glaeser’s words, we now live in “a world where it is essentially free to move goods, but expensive to move people”…

  • Angus Robertson

    One of the big benefits of agglomeration is that it makes housing less expensive (normally, in the real world, unless nimbys are in charge and the council is inept).

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