Agglomeration economies and productivity in Indian industry

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