Why Cities Emerge and Grow? Explanations of Theoretical and Empirical Studies

• Main Author: Eugenia Anatolyevna Kolomak
• Format: Article
• Language: Russian
• Published: Economic Research Institute of the Far East Branch of the Russian Academy of Sciences 2018-06-01
• Series: Prostranstvennaâ Èkonomika
• Subjects: city; scale economy; agglomeration economy; sharing; distribution; matching; learning
• Online Access: http://www.spatial-economics.com/images/spatial-econimics/2018_2/SE.2018.2.134-153.Kolomak.pdf

The article presents the results of theoretical and empirical studies devoted to looking into reasons of creation and success of the cities. The foundation of cities’ growth is the mechanisms of supporting spatial concentration of economic activity. The author studies two key elements of these processes in the framework of microeconomic theory: the increasing returns to scale and external agglomeration effects. Returns to scale are defined by technology, tied to the indivisibility and discretion of output, and are an internal factor not connected with external environment. Agglomeration economy looks into benefits of interacting with agents nearby. The advantages of cities and sources of their development are explained mainly by the agglomeration economy and externalities, divided into localization and urbanization effects. Several mechanisms of explaining city agglomeration economy can be highlighted: 1) distribution of risk; 2) shared usage of indivisible goods; 3) shared usage of a large market of various raw materials and production factors; 4) coordination of skills and work; 5) education, experimentation and accumulation of knowledge. Stability and growth of the cities is defined by combination of factors that have technological and institutional nature. The increasing returns to scale and external effects are supported and strengthened by the market mechanism. As a result, the cities have advantages in creation and shared usage of large output, in generation and distribution of innovations; use the benefits of a wide market, diversity and narrow specialization