Agglomeration Economies and Equilbrium Location of Firms - Term Paper Example

gglomeration is widely practiced by the urban metropolis to ensure good supply channels, trained workers, and infrastructure that will be in compliance with the nature of the industry. Owing to agglomeration economies, people and firms give attention to a particular region of operation or a specific geographical region. The basic perception of agglomeration economies is facilitation of production when economic activity is clustered and such notions are developed to suffice the ultimate end of forming and developing a city.

Multiple factors like types of economies formed, network connections, and the advantages and disadvantages that may result in the growth of cities. Two distinct types of agglomeration economies are operating in the global economic domain: urbanization economies and localization economies. An urbanization economy is related to citys population and level of employment along with the multiplicity of its productive constitution. On the contrary, a localization economy is associated with a citys specialization in one specific segment.

According to Sassen producer services, unlike other types of services are mostly not as reliant on the proximity of the buyers as consumer services. Thus, concentration of production in suitable locations and export, both regionally and internationally are feasible. Production of these services benefits from the nearness to other services, especially when array of specialized firms are available. These firms obtain agglomeration economies when they settle in the vicinity of the others that are sellers of key inputs necessary for combined production of certain service offerings.

This is a valid reason for New Yorks losing of corporate headquarters for the past few decades and the number and employment of firms which were servicing such headquarters went on increasing rapidly. Sassen also highlighted another kind of agglomeration economy which comprises amenities and lifestyles which large urban centers can offer to