Missing Elements in the Analysis of Agglomeration Economies

Abstract

The concept of agglomeration economies continues to represent an important aspect of locational analysis and regional economics. However, the term agglomeration economies is frequently used as a jargon or shorthand, leading to the obvious dangers of misspecification and misinterpretation. Treating agglomeration economies as cost savings to the individual firm, it is argued that these may be seen as particular forms of internal economies and also as particular forms of external economies. It is further argued that each group of economies (internal or external) can be examined in terms of the dimensions of scale, scope, and complexity. Such an approach forms the basis for a classification of agglomeration economies. This classification, which contains an important parallelism of form, is then used to consider a neglected aspect of the analysis—namely, the coexistence of different types of agglomeration economy.