Agglomeration Economies and Productivity Growth

This chapter discusses the nature of the externalities associated with the agglomeration of economic activity in cities and the relationship between these agglomeration economies and productivity growth. There are three related issues concerning the relationship between agglomeration and productivity: Does agglomeration affect levels of income and productivity? Does the agglomeration of economic activity in cities affect the growth of income and productivity, perhaps affecting nations as well as cities, as Jacobs suggests? Do agglomeration economies affect the relative growth rates of income and productivity across cities? While this chapter focuses on the second and third issues regarding growth, some attempt is made to distinguish between factors that affect levels of income and productivity and those that affect growth. The chapter discusses the relationship between agglomeration and productivity growth. A final issue concerns the extent to which agglomeration economies of the sort discussed in this chapter translate into employment growth.