Agglomeration Economies

A job in completed in a better and efficient way when the area of expertise is divided and is clubbed systematically. Agglomeration Economies stands to be another perfect example of Smith’s Division of Labour

Agglomeration economies are the advantages that come when firms and people locate near one another together in cities and industrial flocks. The idea of agglomeration economies entails that spatial concentration of economic activity generates positive impacts on the productivity of economic units located in the region. Agglomeration economies are a form of external economies. Agglomeration economies are meticulously correlated with economies of scale and the network effects. It is essential to discern that a positive consequence of agglomeration economies will only be achieved if the benefits outweigh the disadvantages.

Recent study on urban economics, specially of the developing countries, concentrating on the most

important parameter of differences in income within country, productivity and population density has found a sharp positive correlation between urban agglomerations and economic growth. The instances of these differences are due to two main reasons: First is the shift of agro based economy into industrial- service-based economy, which is an unavoidable phase in the development process of a country; and second is the benefits of higher productivity due to the accumulation of manufacturing and arrangement of services in the large city.

Urban India is also encountering a analogous archetype of metamorphosis as demonstrated by the escalation in economic growth and demographic magnitude. For example, the portion of urban NDP in the national NDP increased from 37.65 per cent in 1970-71 to 52.02 per cent by 2004-05. Also, on the other hand, urban population as percentage of total population increased from 19.9 per cent in 1971 to 27.8 per cent by 2001.

Since the last forty- five years, the spatial equilibrium has been the dominant tool for urban and regional economists investigating to make sense of cities. The logic of the spatial equilibrium is that since people can move freely within a nation, they must be impartial between different locales. This impartiality entails that high wages must counteract by high prices or low conveniences; or else, people would migrate to high- wage areas. High housing prices indicates high wages, high amenities, or both.

However, the spatial equilibrium idea provides only with one half of the labor market equilibrium that influence area wages. The other half consists of the labour demand or in other words, the eagerness of firms to pay for their workers. So, while high wages must indicate something bad about an area, like high prices or poor amenities, high wages also indicate something good about that area that makes firms willing to condone a high cost of labor. Firms wouldn’t continue to locate to metropolitan region unless the areas become productive enough to offset the cost of expensive workers.

As per neo-classical economics, wages reveal the marginal product of labor. In an accepted Cobb- Douglas formulation of the producer’s dilemma, where most of the capital is mobile, the high marginal product of labour in a given area must either indicate a high productivity level or a bounty of non-traded capital inputs to production. Hence, wages can be construed as telling us about the core elements of urban productivity, and high wages in an area are usually deciphered as meaning that the area is unusually productive.

It has been observed that there is a connection between population density in an area, both wages and productivity. Specially, in France, the existence of a strong, robust relationship between density and both wages and productivity is confirmed. This coincides the fact of well- known density- productivity

relationship in the United States as well. Also, there is an immense assortment of historical and geological instruments for current density levels. Population shape in France are awfully permanent. The density of districts in France today is highly correlated with density 170 years ago and with basic features of the soil. The expansion of population or employment furnish a third means of aligning local success. If housing supply is neither perfectly elastic nor perfectly inelastic, then an upsurge in local productivity will inflate both wages and population in an area. In places with more elastic housing, area- level success should primarily show up in the form of larger population levels—not in higher wages or higher housing prices.

The advantages of agglomeration, of either localization or diversity, are likely to amass to service sector

as well. The other grant of the study is admittance of all the 25 Indian state economies in the scrutiny. The first population census in British India was conducted in 1872. Since the year 1951, a census has been executed every 10 years. The census in India is done by the Office of the Registrar General and Census Commissioner under the Ministry of Home Affairs, and this proves to be one of the largest administrative tasks conducted by a federal government.

The current population figures are based on data from the 2011 census of India. India has 6,41,000 populous villages and 72.2 percent of the total population dwell in these rural areas. Among them 1,45,000 villages experience population size of 500–999 persons; 130,000 villages experience population size of 1000–1999 and 128,000 villages experience population size of 200–499. There are 3,961 villages consisting of a population of 10,000 persons or more. India’s 27.8 percent urban population resides in more than 5,100 towns and over 380 urban agglomerations. In the decade of 1991–2001, exodus to major cities caused breakneck increase in urban population. The number of Indians living in urban areas has increased by 31.2% between 1991 and 2001. Yet, in 2001, over 70% lived in rural areas. According to the 2001 census, there were 27 million-plus cities in India, with Mumbai, Delhi, Kolkata, and Chennai being the largest.

Currently there are 53 urban agglomerations in India with a population of 1 million or more as of 2011 against 35 in 2001. Approximately 43 percent of the urban population of India resides in these cities. Srinagar, has become the first agglomeration in Jammu and Kashmir to cross one million. Kerala has supplemented six new million-plus agglomerations in addition to Kochi, the only such area in 2001, and Jharkhand has three such areas.

India, alike many countries in the Global South discover itself in the core of a demographic transition. Though lagging behind some nations like China, India is briskly urbanizing and is set to take over the majority urban mark in 2050 as per the United Nations. For a nation of 1.1 billion people, this migration into and growth of cities will cause with considerable challenges but also exceptional promise. As the growth of cities worldwide gathers the attention of policymakers, a theoretical classifications for how cities is also justified.


Anirvan Mukherjee
An article by:
Anirvan Mukherjee

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