Geography Reference
In-Depth Information
we deal with the mechanisms by which such compensation effects may
operate, and these are known as agglomeration economies.
5.2.1
Marshall's Agglomeration Economies
The current thinking regarding the importance and advantages of indus-
trial clustering centres on the concept of agglomeration economies. These
agglomeration economies are the location-specific economies of scale
which accrue to a geographically clustered group of firms and people, but
which do not accrue to, or more specifically do not spill-over to, other
firms or people in other locations. In modern terminology, such agglom-
eration effects are positive externalities. The local boundedness of these
externalities implies that agglomeration effects are not evenly distributed
across space, but rather they tend to only operate in specific regions.
Moreover, from the above argument, such agglomeration effects will only
be evident if they more than compensate for the congestion costs associ-
ated with industrial clustering.
The nature and advantages of agglomeration economies for localities
was first discussed in detail in the 1851 British Parliamentary Inquiry into
the expansion of the railway system into Manchester, which considered
the types of mechanisms operating with 'manufacturing' districts. Some
forty years later, Alfred Marshall (1890) then picked up these specific
themes in his discussion of 'industrial districts'. In his analysis he provided
three explanations for the existence of economies of scale in situations of
local industrial clustering.
Marshall's first observation concerns the existence of what today we
would refer to as
knowledge spillovers
. Localized knowledge spillovers
have mostly a tacit and informal nature and refer to the advantage that
social actors accrue in accessing and using knowledge that freely spills
over, both intentionally and unintentionally, from other co-located actors.
Marshall's observation was that knowledge spillovers tend to operate
specifically at the level of a local area which, following the 1851 inquiry,
may in some cases be a neighbourhood, a city, or even a group of cities in
a region.
Marshall's second explanation for local external economies arises due
to the presence of
specialist local inputs
. These inputs may be non-traded
inputs such as infrastructure, while others may be traded locally, such as
specialist local services or intermediates. The key issues here are the econo-
mies of scale afforded locally by the provision of such inputs or services
specifically because of the size of the local market. The provision of many
non-traded or traded inputs require huge capital investments to be under-
taken, and a large local market allows these costs to be defrayed across a
