In order for the economy to grow, an urban area has to be positioned in an area where development exists and where there is economic growth is running. As long as economic energy is in an urban area, also the activity of urban force, it is necessary to gain a contribution to the appearance of the role of urban areas in economic growth and development. Economists are concerned about how the economic growth of their cities is increased. Mostly populated urban areas, chances of an economic opportunity exist in those areas. The majority of ideas analyze the importance of growth opportunities in an urban area. Internal economies make the production of firms produce goods that are more cost-effective than single members. Agglomeration economies cause firms to cluster in the cities and clustering causes economic power and development in that city.
Talking about people’s growth, it is the first time in history that the urban population in the world is equal to the rural one and by 2050 it expects the urban population to represent 70% of the total population in the world. People have been located in large cities whereas people from small cities are a common phenomenon. For example, in the US around 75% of inhabitants moved to the cities and 83% of employment is in metropolitan areas, so this means 24% of the total area.
Agglomeration Economies are the motion in urban economies. Because all economic activities are based in one location, Agglomeration economies mean the spatial concentration result from scale economies. It is also the benefit of spatial concentration due to the scale of the entire urban area, but not from the scale of a particular firm. if firms locate close to one another, this will produce a low cost. So, this is an example of an externality of production as the cost of production of firms goes lower and the production of other firms gets higher. The reality of agglomeration economies is important to the economic justification of urban growth. The amount of economies scale that unit costs fall as the production increases may vary greatly between various production activities. The scale of economies is critical to the existence of urban areas. The non-existence of scale f economies, goods and services will be produced on an arbitrarily small scale to satisfy the demand of small groups of consumers. Mixing the scale of economies and transportation cause consumers to locate close production facilities which are benefitable to meet the expectations of the demand in the surrounding area. Goods and services are produced more efficiently on a large scale than on an arbitrarily small scale.
The economies scale emerges for two reasons. The first one is the factor specialisation increases productivity because the skills of labour increase and spend less time getting a task done to another. The second thing, without separation inputs, has a minimum scale of efficiency. If that input is cut in half, the output of two halves will be less than the output of the whole. As output increases, the firm use will increase amounts of indivisible inputs, thereby increasing productivity. If workers’ wages make no difference if they work at their homes or at a factory, then a small urban area develops around a factory. Local labour will save money on travel costs and will increase the price of land by the factory. To spend less on the land, the labour resides in smaller lots of land and the density of people nearby the factory relative to the rest of the region. If a city becomes high-density, companies bring about the development of a small factory city. Factory cities will develop as labour can specialise and use their wages to buy other necessities, and economies of scale are large enough to underpin prices that workers would have asked for had they been working and selling from their homes.
The scale of economies has connected to the concept of comparative advantage. It is important for an urban area to figure out the strength of its comparative advantage for it to recognize itself from other urban areas. There are three dimensions that will often determine an area’s comparative advantage, its demand, its production, etc. These dimensions are the depth “quality of an area’s environment and ingenuity of its people”, diversity of its economy, and scale of activities. Comparative advantages mean if the productivity of two different areas becomes unsimilar. The difference between these two productivities is caused “inter alia” by differences in workers’ skills, climate etc. in addition to that, these productivity differences will make sure that other urban regions will produce goods and services which are lower prices than the other regions. The reason is that the prices are not the same between those regions. On top of this, some of these regions can start to trade different products than others. The location and traders can cause the development of market cities. Employed people of firms will also locate close to the marketplace as they looking to save travel costs and a higher price of land will be the outcome. Urban people will then make a choice for small pieces of land and it increases the density of the nearby area. Cities develop by the high urban density. The difference between the productivity that generates comparative advantage is large enough to offset transportation costs, so trade occurs.
Localisation Economies occur when the production cost of an entire group of firms decreases as the total output of the industry increases at that location. Firms find it advantageous to be close to other firms in the same industry. Proximity favours the transmission of ideas, vertical relationships, proximity to specialized suppliers and Labour pooling which is a pool of workers specialized in this industry. Localisation economies produce clusters of firms in the same industry. Companies in the cluster utilize the scale of economies in the production of specialised inputs as they share the suppliers of these inputs. The cluster attracts suppliers, companies also utilize scale economies in supplying of specialised public services. Planners should invent a strategy to establish a cluster of closely related firms to attract more growth.
The labour pool is locating firms close together, this will contribute to the development of a skilled labour pool. If firms do not establish labour demands, then labour market advantages reaching a climax or point of highest development from agglomeration are particularly useful. The firm will spread its workforce because of the number of skilled labour available. Shortage of qualified labour of industry may think developing training schools to improve the quality of labour. The conception of localisation invests in employment creation as increased demand for the concentration of employment. The growth of employment in the local industry is divided into three. The first is that which can be attributed to total employment growth in the country. Next, a certain percentage may be attributed to the fact that national employment growth in a particular industry was more rapid (or slower) than in the country as a whole. The third part is where a comparison is drawn between the employment growth in the local industry and that industry’s national growth rate. Here, a direct comparison is made between the industry’s growth locally and nationally and is therefore normally called the competitive position of the local industry.
External Economies occur from knowledge spillovers involving the level of productivity of economic growth in a nation. Localisation economies can cause better training or learning about the most efficient production process from other firms in the urban areas. However, continued reduction in costs is important. The greater concentration of firms in a particular industry in an urban area will cause a greater rate of new product development, improvement in existing products, as well as improvements in the methods of these products. Innovation increases if highly trained participate to improve the industry. The information will likely be passed by highly trained workers who go from one firm to another firm or business meetings and conferences with spying or copying competitors’ products and training programmes. In this modern century, with the use of the internet, innovators and imitators do not necessarily have to locate close. But still, close proximity is important. Scholars called this situation the transmitting of ambiguous information. They defined ambiguous information as information that requires an interactive and convergent set of exchanges before the final exchange can be consummated. Internal Agglomeration economies cost reduction per unit that accumulates to a firm which enlarges its plant in an area. The firm will gain the advantage of this expansion, so the agglomeration economies are internal. In addition, fixed cost expands by a large output. Other agglomeration economies such as division of labour and the use of technology and savings through the large size of purchases.
Urbanisation economies are firm costs that decline as the total output of urban areas increases. Because of reasons similar to localization economies. But differences include: Produced by the scale of the entire urban economy, Produces benefits for all firms in the city, not just in a single industry. Urbanization economies underpin why cities exist. Urbanisation economies differ from localisation economies in two ways: Firstly, urbanisation economies result from the scale of the entire urban economy and not just the scale of a particular industry. Secondly, urbanisation economies generate benefits for firms throughout the city and not just firms in a particular industry. Urban infrastructure is classified as roads, sewers, fire protection and health facilities. Therefore, urbanisation economies occur from the scale of economies in public infrastructure. Furthermore, infrastructure is necessary to input in diver sing private production and consumption. If the standard and quality of infrastructure provision are at a high level, an increase in the size of an urban area allows for lower per unit infrastructure costs. These savings in costs may be passed on to producers or consumers in the form of lower taxes. Urban diseconomies occur when the economic concentration increase and becomes more relevant. Urbanisation economies may, to a certain extent, be partially offset by urban diseconomies. Scientists point out that crime, anxiety and loneliness are personal costs involved in high-density areas. The competition of firms in which they locate close to large agglomerations causes rent increases as well as higher wages especially working in congested areas. Productivity becomes more a result of the size of urban area increase. Therefore, urbanisation economies tend to outweigh urban diseconomies over the range of the city size.
The clustering of similar shops causes sales for all to be higher. Two types of products lead to this: Imperfect substitutes and complementary goods. Also, Sales of one store are affected by the location of others in same product line.
In conclusion, agglomeration is critical to urban economies, different types of agglomeration occur, and the agglomeration economies generated in urban areas are conducive to opportunities for economic growth and development. The mere fact that firms are located within close range ensures that they are well positioned to exploit the benefits provided by proximity within urban areas. The sources of localisation and urbanisation economies are contributing to and strengthening the economic possibilities of this spatial concentration. However, the concentration of economic activities and people that are responsible for creating positive externalities are also responsible for the generation of negative externalities that could offset the expected economic outcome. It is therefore important to address these issues to limit the negative effect thereof on the urban economy.