Measuring Agglomeration Economies - the Agglomeration Index

a Regional Classification Based on Agglomeration Economies

Abstract

Urban agglomerations are of significant importance for national economies. Although this statement appears to state the obvious, it is nevertheless difficult to test. The influence of urban areas is mainly generated by agglomeration economies, from which not only the inhabitants, but also other participants in the urban process, benefit. Agglomeration economies are often seen as the driving force behind urban dynamics in all kinds of fields (e.g., rapid economic growth of urbanized regions, spatial concentration of high-tech enterprises). On the other hand agglomeration diseconomies are an explanation for traffic congestion and high crime rates. Agglomeration economies have had worldwide attention in both urban and regional literature. It is probably because of the lack of an operational definition of an agglomeration that little attention has been paid in arriving at a clear quantification of agglomeration economies.                                                 

In this article a new regional classification based on agglomeration economies is presented, especially suited for the multi-city systems that are dominating most postindustrial societies. Inter-urban influences are a central topic in this article. Although the specification of an index strongly depends on the presuppositions made, it is found that the presented agglomeration index is rather insensitive to relatively small adjustments in those presuppositions. This makes the agglomeration index highly suitable for empirical research in which agglomeration economies are used as an explanatory variable. In the conclusion, some results from this kind of research are presented.