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Agglomeration economies and productivity in Indian industry

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Author Info
Lall, Somik
Shalizi, Zmarak
Deichmann, Uwe

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Abstract

"New"economic geography theory, and the development of innovative methods of analysis have renewed interest in the location, and spatial concentration of economic activities. The authors examine the extent to which agglomeration economies contribute to economic productivity. They distinguish three sources of agglomeration economies: 1) At the firm level, from improved access to market centers. 2) At the industry level, from enhanced intra-industry linkages. 3) At the regional level, from inter-industry urbanization economies. The input demand framework they use in analysis, permits the production function to be estimated jointly with a set of cost shares, and, makes allowances for non-constant returns to scale, and for agglomeration economies to be factor-augmenting. They use firm-level data for standardized manufacturing in India, together with spatially detailed physio-geographic information that considers the availability, and quality of transport networks linking urban centers - thereby accounting for heterogeneity in the density of transport networks, between different parts of the country. The sources, and magnitudes of agglomeration vary considerably between industrial sectors. Their results indicate that access to markets, through improvements in inter-regional infrastructure, is an important determinant of firm-level productivity, whereas the benefits of locating in dense urban areas, do not appear to offset the associated costs. Improving the quality, and availability of transport infrastructure, linking smaller urban areas to the rest of the inter-regional network, would improve market access for manufacturing plants. It would also give standardized manufacturing activities a chance to move out of large, costly urban centers, to lower cost secondary centers.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 2663.

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Date of creation: 31 Aug 2001
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Handle: RePEc:wbk:wbrwps:2663

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Keywords: Environmental Economics&Policies; Labor Policies; Banks&Banking Reform; Economic Theory&Research; Water and Industry; Banks&Banking Reform; Economic Theory&Research; Water and Industry; Municipal Financial Management; Environmental Economics&Policies;

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Fujita, Masahisa & Thisse, Jacques-Francois, 1996. "Economics of Agglomeration," Journal of the Japanese and International Economies, Elsevier, vol. 10(4), pages 339-378, December. [Downloadable!] (restricted)
    Other versions:
  2. Samuelson, Paul A, 1983. "Thunen at Two Hundred," Journal of Economic Literature, American Economic Association, vol. 21(4), pages 1468-88, December. [Downloadable!] (restricted)
  3. Sveikauskas, Leo A, 1975. "The Productivity of Cities," The Quarterly Journal of Economics, MIT Press, vol. 89(3), pages 393-413, August. [Downloadable!] (restricted)
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  6. Feser, Edward J., 2001. "A flexible test for agglomeration economies in two US manufacturing industries," Regional Science and Urban Economics, Elsevier, vol. 31(1), pages 1-19, February. [Downloadable!] (restricted)
  7. Selting, Anne & Allanach, Christopher & Loveridge, Scott, 1994. "The Role Of Agglomeration Economies In Firm Location: A Review Of The Literature," Staff Papers 13321, University of Minnesota, Department of Applied Economics. [Downloadable!]
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  10. Henderson, Vernon, 2000. "How urban concentration affects economic growth," Policy Research Working Paper Series 2326, The World Bank. [Downloadable!]
  11. J. Vernon Henderson, Zmarak Shalizi, and Anthony J. Venables, 2001. "Geography and development," Journal of Economic Geography, Oxford University Press, vol. 1(1), pages 81-105, January.
    Other versions:
  12. Fujita, Masahisa & Mori, Tomoya, 1996. "The role of ports in the making of major cities: Self-agglomeration and hub-effect," Journal of Development Economics, Elsevier, vol. 49(1), pages 93-120, April. [Downloadable!] (restricted)
  13. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June. [Downloadable!] (restricted)
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  14. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476.
  15. Chan, M W Luke & Mountain, Dean C, 1983. "Economies of Scale and the Tornqvist Discrete Measure of Productivity Growth," The Review of Economics and Statistics, MIT Press, vol. 65(4), pages 663-67, November. [Downloadable!] (restricted)
  16. Lall, Somik V. & Rodrigo, G. Chris, 2001. "Perspectives on the Sources of Heterogeneity in Indian Industry," World Development, Elsevier, vol. 29(12), pages 2127-2143, December. [Downloadable!] (restricted)
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  17. Kim, H Youn, 1992. "The Translog Production Function and Variable Returns to Scale," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 546-52, August. [Downloadable!] (restricted)
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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jinhwan Oh, 2008. "Concentration, congestion, and the dynamics: spatial re-modeling of the Murphy, Shleifer, and Vishny model," Letters in Spatial and Resource Sciences, Springer, vol. 1(2), pages 77-97, December. [Downloadable!] (restricted)
  2. Yusuf , Shahid & Nabeshima, Kaoru, 2009. "Can Malaysia escape the middle-income Trap ? a strategy for Penang," Policy Research Working Paper Series 4971, The World Bank. [Downloadable!]
  3. Duranton, Gilles, 2008. "From Cities to Productivity and Growth in Developing Countries," CEPR Discussion Papers 6634, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. Jinhwan Oh, 2008. "Concentration, congestion, and the dynamics: spatial re-modeling of the Murphy, Shleifer, and Vishny model," AStA Wirtschafts- und Sozialstatistisches Archiv, Springer, vol. 1(2), pages 77-97, December. [Downloadable!] (restricted)
  5. Lall, Somik V. & Chakravorty, Sanjoy, 2004. "Industrial Location and Spatial Inequality: Theory and Evidence from India," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
    Other versions:
  6. Zeljko Bogetic & Issa Sanogo, 2005. "Infrastructure, Productivity and Urban Dynamics in Cote d'Ivoire, Africa Region Working Paper Series No. 86 (July 2005), The World Bank, Washington D.C," Urban/Regional 0510001, EconWPA. [Downloadable!]
  7. Chakravorty, Sanjoy & Koo, Jun & Lall, Smik V., 2003. "Metropolitan industrial clusters ; patterns and processes," Policy Research Working Paper Series 3073, The World Bank. [Downloadable!]
  8. Michel Mignolet, 2003. "What Regional Policy to Make up for Regional Productivity Handicap?," ERSA conference papers ersa03p298, European Regional Science Association. [Downloadable!]
  9. Deichmann, Uwe & Fay, Marianne & Jun Koo & Lall, Somik V., 2002. "Economic structure, productivity, and infrastructure quality in southern Mexico," Policy Research Working Paper Series 2900, The World Bank. [Downloadable!]
    Other versions:
  10. Francesco Aiello & Paola Cardamone, 2008. "R&D spillovers and firms’ performance in Italy," Empirical Economics, Springer, vol. 34(1), pages 143-166, February. [Downloadable!] (restricted)
  11. Maarten Bosker & Harry Garretsen, 2008. "Economic Geography and Economic Development in Sub-Saharan Africa," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  12. Mita Bhattacharya & Paresh K. Narayan & Stephen Popp & Badri N. Rath, 2009. "The Productivity-Wage And Productivityemployment Nexus - A Panel Data Analysis Of Indian Manufacturing," Development Research Unit Working Paper Series 07-09, Monash University, Department of Economics. [Downloadable!]
  13. Lall, Somik V. & Jun Koo & Chakravorty, Sanjoy, 2003. "Diversity matters - the economic geography of industry location in India," Policy Research Working Paper Series 3072, The World Bank. [Downloadable!]
  14. Lall, Somik V. & Mengistae, Taye, 2005. "The impact of business environment and economic geography on plant-level productivity : an analysis of Indian industry," Policy Research Working Paper Series 3664, The World Bank. [Downloadable!]
  15. Mishra, SK, 2007. "Globalization and its Effects on Regional Variations in Factor Substitution and Returns to Scale in the Indian Factory Sector," MPRA Paper 3265, University Library of Munich, Germany. [Downloadable!]
  16. Henry Overman & Anthony J. Venables, 2005. "Cities in the Developing World," CEP Discussion Papers dp0695, Centre for Economic Performance, LSE. [Downloadable!]
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