Transportation Geography and Network Science/Agglomeration

Definition

Agglomeration is the process by which a collection or group of things are brought together. In the context of a city, an urban agglomeration is the growth of a city, district or suburb due to urbanisation processes. Generally, agglomeration occurs to increase the benefits associated with closeness and accessibility. This is known as the economies of agglomeration. Economies of agglomeration occur when the cost of operation is reduced due to the increased productivity, specialisation and accessibility that arise from a clustering of business, suppliers or retailers. For example, fashion retailers would benefit from clustering in a shopping centre due to the increased flow of customers, the ease of manufacturer delivery, the ease of parking and accessibility by public transport systems.

Importance

Agglomeration is crucial to the continuing success and economic development of a nation, city or district. As a city grows in population and in space, the way that retailers, suppliers and firms locate themselves will define their relative success. Studies show that businesses that locate themselves near to complementary and even competing products are more successful as they result in large local markets, a large supply of labour and accumulation of knowledge and industry practice. In this way agglomeration primarily occurs in retail, business or industry centres, as opposed to residential areas. This is because the benefits of close access to other properties and increased accessibility aren't realised in a residential setting as they are in business sectors.

The relationship between agglomeration and network growth is a positive feedback loop. As a metropolitan area grows to become denser and realise the benefits of agglomeration money is invested into improving the accessibility of the location, which then encourages further growth and development, encouraging more investment into transport infrastructure and so on. Therefore, agglomeration is one of the most significant driving factors influencing the urban distribution of modern cities. Agglomeration can be analysed from a large, city-scale perspective or a smaller industry-scale perspective. Both will be addressed in this Wikibook.

Process

Agglomeration: City and Industry

Agglomeration changes the way cities grow, and hence it is very important for transport and economic researchers to model and understand the process of agglomeration. In this way, they can predict the growth of a city, plan network development, property investment or development and increase the efficiency of business and industry sectors. In its simplest form, agglomeration occurs when there is a financial benefit to proximity to customers, suppliers, businesses or any other beneficiaries. Whilst the reasons for this and the process is similar, agglomeration can happen on large city-scales or smaller industry-scales.

Cycle of agglomeration in a growing city

Agglomeration of a City

The agglomeration of a city is heavily related to urbanisation. Urban agglomerations have always existed, however, not at the size and scale that is seen in modern cities. The main driver for the significant growth was the industrial revolution in the late 18th century. The mechanisation of rural industries such as farming, and a demand for factory and commercial work in cities began to create a shift from a predominantly rural population to a denser urban population. Small cities were able to grow into global economic centres and towns became crucial regional industry hubs. For example, London grew from a population of 1 million in 1800 to 6.7 million in 1900.

People flocked to cities because they offered economic opportunities previously unavailable before advancements in technology, such as mass-manufacturing, large scale construction and commercial markets. The process through which this happens operates as a positive feedback loop.

This sees a city expand exponentially as long as the opportunities and economic prosperity continue to be present. Proximity to industry and commercial opportunities are the major drivers of city growth as a rapidly urbanising population seek new opportunities. The city then expands around a central business district in all directions. Smaller, business hubs also develop as rural areas become suburbia and grow into dense residential districts supporting the positive feedback loop.

Agglomeration of Industries and Businesses

Agglomeration also happens on a smaller scale. Within a city, certain businesses and industries will often locate themselves in close proximity to capitalise on the benefits of agglomeration within a city. Examples of this are the CBD district of cities, where financial companies desire to locate, or the ports and airports, where shipping companies locate themselves. Each does so to ensure they are in the most profitable location. In some cases, a particular industry can agglomerate to one city. For example, in the USA;

- Financial Services, New York

- Education Services, Boston

- Federal Government, Washington D.C.

- Automobile Manufacturing, Detroit

- Technology, San Francisco (Silicon Valley)

- Casino and Tourism, Las Vegas

- Cinema, Los Angeles

- Steel Manufacturing, Pittsburgh

These agglomerations of industry occur due to the benefits of proximity to customers, resources, businesses, and service. This is known as clusters and their benefits are described below.

Customers

Many businesses realise the benefits of agglomeration through higher and more consistent customer traffic. Consider the example of a clothes store. A clothes store that is located on a street in suburbia would not receive as many customers per hour as the same store located in a busy shopping centre. The mall store would receive traffic from customers who had not initially intended to visit that store but were just walking by, whereas, the roadside store would mostly only receive customers who knew what they wanted already. Additionally, the facilities of a shopping centre make it more desirable for customers. A shopping centre has parking facilities, food outlets and recreational activities available, which may attract customers to the shopping centre and hence the store. Finally, whilst it may seem contradictory, having competing stores nearby may also drive customer numbers up. A customer who did not find what they wanted in a competing store, may turn to your store instead of finding what they are after. Therefore, businesses that rely on customers will receive more customers (and hence more money) when operating in a higher retail density setting. However, trade-offs must be considered for higher rent prices and taxes.

Accessibility

Agglomeration allows businesses and industries to be more accessible, not only to customers as discussed but also to each other. This accessibility encourages higher productivity in industries that require significant cooperation or negotiation between parties like investors, contractors, or suppliers. Consider large infrastructure projects. The main project office is located in the CBD, near the offices of the contractors and subcontractors that will do the job. This allows for easily organised and accessible locations for meetings and negotiations to take place. This reduces wasted time and hence wasted money. Therefore, when businesses that rely on meetings and efficiency of business situate themselves in a location near their desired associate businesses, they will realise the economic benefits of increased productivity.

Transport Costs

Industries that rely on delivery of products or services will also see benefits from agglomeration. Suppliers can locate themselves in areas that are close to the customers or businesses that they supply, where there is a transportation network designed do facilitate quick delivery. When lost of shipping related businesses agglomerate, this demands the infrastructure be upgraded and developed to ensure that the industry can thrive. Hence, this is an example of the positive feedback loop previously mentioned, in which the agglomeration will then drive infrastructure improvements to facilitate the industry. Governments are willing to spend this money as better product and service delivery will support the growth of the city and the growth of the economy.

Employment

Not only do businesses desire to be close to customers, but also to employees. If a business is in a location that is accessible for employees, it is generally more likely to attract higher quality workers, due to an increased pool of available applicants. Therefore, CBD districts are desirable for businesses as these areas have the most well-connected road and transit networks. This allows for ease of access for employees from all over the city. On the other hand, for the same business located in a smaller business hub or suburb, would find that many individuals in other parts of the city would not consider the job.

Knowledge

Proximity to other industries of a similar nature helps to enhance the rate of learning and technological advancements. It is for this reason the areas like Silicon Valley in California have become industry hubs for technology companies. They have better access to companies with similar or supporting technology that can help to advance their own company's development and progression. Additionally, linking back to employment, industry agglomerations attract potential employees of that industry, making it easier to find workers who best fit the company.

Resources

Proximity to the resources is important to a company and its success. This is why manufacturing districts are often located well outside of the CBD district of a city so that materials brought in for manufacturing from mines, farms or forests do not have to travel through the city traffic to reach their destination. This also plays a role in determining if certain cities will have a specialised industry agglomeration. Industries will flock to a city in which it is cheapest to access the resources needed to manufacture their product.

Therefore, businesses and industries desire to be in areas where the benefits listed above can be most effectively realised.

Additional Effects of Agglomeration

Agglomeration has a wide range of direct and indirect effects on the geography and economy of a city. The benefits of improved economic output are apparent. Businesses can be more productive and more profitable. However, there is a range of benefits to agglomeration that isn't purely based on the economic success of a business. Customers also tend to see economic value in agglomeration. Increased competition is a small area that often causes product or service prices to drop in an attempt to one-up the competition. Customers will also have a wider range of products and services available in a single location, making it easier to shop around for the best deal.

One of the most significant effects of agglomeration is how it shapes transportation networks. As an industry or district grows in a city, money is invested in complementing and enhancing the economic success of that area. Consider the CBD of a city. As more companies establish themselves in a CBD district and the travel demand to that region grows, so too does the demand for transport infrastructure to support efficient travel. This is why many cities, see transit networks develop that focus travel to a central point or region. This is particularly evident in cities that had not fully established themselves prior to the industrial revolution, such as Sydney, Chicago or Melbourne. In these cities, there was less existing infrastructure restricting the growth of mega-structures and large business districts packed in small land space. Hence, the transit networks become focused on a single point and less circular as in older cities like London or Paris.

Agglomeration processes can also have some undesirable effects. An attraction of customers, employees and shipping in a localised area may cause significant traffic problems if the network is not effectively managed and developed. This can result in a stagnation of the agglomeration process as businesses and industries avoid the negative economic effects of traffic. In a similar fashion, agglomeration can create a reliance on some specific links in a network. If an accident were to happen on a major road into the city, or if a train line was down into the CBD, then there would be significant network effects. In a city that has an evener distribution of industry, this would not have the same economic effect.

Further Questions

Can you think of any examples of agglomeration within a city other than that of an industry/business/company?

Why do you think some more modern cities show more significant levels of agglomeration than older cities? (Think Sydney/Chicago vs. London/Barcelona)

Do you think that the agglomeration of industries is mostly driven by the industry, the infrastructure, or the government policy?

References and Reading List

See also: Transportation Economics/Positive externalities