Agglomeration, Productivity and Regional Growth: Production Theory Approaches

Agglomeration Economies, or production cost savings due to geographic clustering of firms and industries, can enhance the growth and development of firms, industries, regions and cities. We provide an overview of the theory and empirical literature of agglomeration, and highlight several applications from the cost function perspective. These applications include cost savings from density in the U.S. food manufacturing industry (Cohen and Morrison Paul, 2005); transportation infrastructure and costs for the overall manufacturing sector in the U.S. (Cohen and Morrison Paul, 2007); and hospital locations and costs in the State of Washington (Cohen and Morrison Paul, forthcoming). In all of these applications, the authors find significant evidence of various forms of agglomeration economies.