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Agglomeration economies and urban public infrastructure

In: Handbook of Regional and Urban Economics

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Author Info
Eberts, Randall W.
McMillen, Daniel P.

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Abstract

This chapter reviews the theoretical and empirical literature on agglomeration economies and urban public infrastructure. Theory links the two concepts by positing that agglomeration economies exist when firms in an urban area share a public good as an input to production. One type of shareable input is the close proximity of businesses and labor, that generates positive externalities which in turn lower the production cost of one business as the output of other businesses increases. The externalities result from businesses sharing nonexcludable inputs, such as a common labor pool, technical expertise, general knowledge and personal contacts. Another perhaps more tangible type of shareable input is urban public infrastructure. Public capital stock, such as highways, water treatment facilities, and communication systems, directly affect the efficient operation of cities by facilitating business activities and improving worker productivity.The literature has devoted considerable attention to both topics, but not together. Studies of agglomeration economies in several countries find that manufacturing firms are more productive in large cities than in smaller ones. Studies of the effect of infrastructure on productivity show positive, but in some cases statistically insignificant, effects of public capital stock on productivity. Most of these studies are at the national and state levels. Only a handful of studies have focused on the metropolitan level, and even fewer have estimated agglomeration economies and infrastructure effects simultaneously. Results from studies that include both types of shared inputs suggest that both spatial proximity and physical infrastructure contribute positively to the productivity of firms in urban areas. More research is needed to explore the interrelationships between urban size and urban public infrastructure and to open the "black box" of agglomeration economies and estimate how the various other factors associated with urban size affect productivity.

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This chapter was published in: P. C. Cheshire & E. S. Mills (ed.) Handbook of Regional and Urban Economics, , chapter 38, pages 1455-1495, 1999.

This item is provided by Elsevier in its series Handbook of Regional and Urban Economics with number 3-38.

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This chapter was published in the following book, which is listed on IDEAS:
P. C. Cheshire & E. S. Mills (ed.), 1999. "Handbook of Regional and Urban Economics," Handbook of Regional and Urban Economics, Elsevier, edition 1, volume 3, number 3, February. [Downloadable!] (restricted)
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R1 - Urban, Rural, and Regional Economics - - General Regional Economics

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  1. Andrew F. Haughwout, 2001. "Infrastructure and social welfare in metropolitan America," Economic Policy Review, Federal Reserve Bank of New York, issue Dec, pages 1-16. [Downloadable!]
  2. Fabio Grazi & Jeroen C.J.M. van den Bergh & Piet Rietveld, 2006. "Modeling Spatial Sustainability: Spatial Welfare Economics versus Ecological Footprint," Working Papers 2006.5, Fondazione Eni Enrico Mattei. [Downloadable!]
  3. Christopher H. Wheeler, 2004. "Productivity and the geographic concentration of industry: the role of plant scale," Working Papers 2004-024, Federal Reserve Bank of St. Louis. [Downloadable!]
    Other versions:
  4. Kirsi Mukkala, 2003. "Agglomeration economies in the Finnish manufacturing sector," ERSA conference papers ersa03p361, European Regional Science Association. [Downloadable!]
  5. Gerald Carlino & Satyajit Chatterjee & Robert Hunt, 2005. "Matching and learning in cities: urban density and the rate of invention," Working Papers 04-16, Federal Reserve Bank of Philadelphia. [Downloadable!]
    Other versions:
  6. Gerald Carlino & Satyajit Chatterjee & Robert Hunt, 2006. "Urban density and the rate of invention," Working Papers 06-14, Federal Reserve Bank of Philadelphia. [Downloadable!]
    Other versions:
  7. Wostner, Peter, 2002. "Regional disparities in transition economies - the case of Slovenia," ERSA conference papers ersa02p154, European Regional Science Association. [Downloadable!]
  8. Ryohei Nakamura, 2005. "Agglomeration Economies and Linkage Externalities in Urban Manufacturing Industries - A Case of Japanese Cities," ERSA conference papers ersa05p768, European Regional Science Association. [Downloadable!]
  9. Kirsi Mukkala, 2004. "Agglomeration economies in the finnish manufacturing sector," Applied Economics, Taylor and Francis Journals, vol. 36(21), pages 2419-2427, December. [Downloadable!] (restricted)
  10. Henry G. Overman & Anthony J. Venables, 2005. "Cities in the Developing World," CEP Discussion Papers dp0695, Centre for Economic Performance, LSE. [Downloadable!]
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