Why people and firms are not evenly distributed around the world? Why do they not use land equally and why are firms and people are not equally spaced? Why are they concentrated in special areas although there is no geographical or structural difference? Reality shows a different picture to an equally distributed use of land and space: There is concentration of people and firms at special places or areas. The existence of cities is one of the questions that are interesting in an ex-post point of view as well as in future perspectives. The question is why cities exist and why are they different in size or in other words where do they locate and why as well as how do they develop. Therefore it makes sense to analyse the rationale for the existence of cities in terms of their determinants. There are dimensions that we should have a closer look at such as the localisation of cities, their growth and their different sizes. Firstly, different definitions of cities are mentioned. Afterwards the reasons for agglomeration forces through economies of scale that result in cities are described. Further its limits are analysed that bound the growth of cities. For explaining the different arrangement as well as the different sizes of cities the central place approaches of Christaller and Lösch are mentioned. Finally the empirical based rank-rule gives additional explanation for different sized cities.
Reason for Cities
First of all, it is necessary to define a city: The technical definition names a city by including more than 25,000 habitants. Additionally it can be described as an urban political unit situated in a local economic region. M. Weber defines a city economically as a settlement the inhabitants of which live primarily off versatility trade and commerce than agriculture (Weber, 1958: 66). Moreover cities are characterised by a dense agglomeration of firms and people at one location (Glaeser, 1998: 140-1). Moreover activities of firms and people are grouped together geographically or in other words activities are clustered together in space (McCann, 2001: 53). The question occurs what are the reasons for this agglomeration? “The rationale for the existence of cities derives initially from the economies arising from specialisation of the labour force” (Vickerman, 1984: 9). Agglomeration forces can be seen as the raison d'être for the existence of cities and may describe as centripetally: On the one hand they attract new firms to a special location because of higher productivity and higher returns. On the other hand agglomeration forces exert a pull on labour through employment opportunities and wages, living conditions and other advantages of urban living (Duranton, 2000: 540; Vickerman, 1984: 10). There are several models existing that explain the existence and its advantages of clusters, however due to limited space just one should be mentioned. The central place theory as it is mentioned below is just briefly given here: It gives the explanation of the existence of economies of scale caused by agglomeration: The trade-off between scale economies and transport cost will lead to a central place.
Firstly, the existence of cities is explained through the advantages of concentration, agglomeration and urbanisation and its economies of scale. A deeper focus on agglomeration and its economies of scale should be given: Activities are generally space clustered and place specific. Furthermore a special industry clusters at one particular place and achieves a relative high degree of investment. Also it will demand a high amount of land that leads prices for land to increase. Hence, by constant returns to scale the increase of land rends equals to less profitability of all firms at one location. Some firms may move because of that. However, increased factor prices will be compensated by higher productivity by being more efficient. If all firm improve activities that will lead to economic growth.
Secondly, according to Marshall these agglomerations are external economies: Although they are independent to a firm, the emergence of agglomeration economies is caused by clustered firms within the same area in other words internal to the group (McCann, 2001: 55-7). Agglomeration economies are classified into internal returns to scale, localisation and urbanisation economies. Whereas localisation economies contain agglomeration forces within a sector at the same place, urbanisation economies imply those ones across different sectors. Internal ones are generated through the large size of production and investment. Localisation and urbanisation economies occur due to specialisation advantages at one place such as non-traded services or a local skilled-labour pool (Duranton, 2000: 540; McCann, 2001: 58-60; Vickerman, 1984: 9-11). The sources of agglomeration economies are the advantages of a local skilled-labour pool, local non-traded inputs and information spillovers: Firstly, the existence of a skilled labour pool reduces the labour acquisition costs in terms of quantity and quality as well as it opportunity costs of expanding workforce. Secondly, local non-traded inputs such as particular industry required local infrastructure and provided specialist services are more likely. Additionally participants benefit from special local non-traded inputs by spread costs across firms. Lastly, information spillovers due to technology and (tacit) knowledge improve the position in market by information advantages (Krugman, 1991: 36-54; McCann (2001: 55-7).
 For further reading according to these models: McCann, 2001; Fujita, 1999.
- Quote paper
- Susanne Jung (Author), 2003, Why do Cities develop? And why they are different in size?, Munich, GRIN Verlag, https://www.grin.com/document/53645