Question

Briefly explain what the term "agglomeration economies" refers to and briefly describe what the fundamental reason for the development of this particular type of econorny relates to. From Oman economy please provide two examples of factors associated with agglomeration economies and Identify what these factors help to explain. Identify two factors that would lead to diseconomies and briefly explain how the future of many of the world's cities will be likely be determined. answer all the parts in the question I need 500 words

Answer 1

Agglomeration economies occur when individuals and firms benefit from being near to others. Physical proximity to other firms, workers and consumers, may help firms in the day to-day business of producing goods and services. This implies that the productivity of individual firms will rise with the overall amount of activity in other nearby firms, or with the number of nearby workers or consumers. Physical proximity may also facilitate the flow of ideas and knowledge, leading firms to be more creative and innovative. The extent to which this shows up in individual firm productivity will depend on the type of innovation taking place, but any such effects will clearly be important in understanding the growth of cities.

Agglomeration through sharing occurs when large numbers of firms or workers benefit by drawing on a common pool of resources when organizing their activities. In some sectors the intermediate goods (inputs) that firms use are not perfect substitutes and the total number of inputs used may be variable and dependent on supply.

The current horizontal movement of population in Oman, the continuingly growing concentrations along the coast and the shift of the mean centre of population from the mountainous and isolated interior are of major significance. They symbolize a drift from an enclosed and tenable traditional world to an open and vulnerable new world. Indeed, the effects of recent transformations, added to the country’s natural constraints, social dynamics and political concerns, are engendering great changes in the geographical space and the perception of national territory. As population trans locality – in the sense of movements and relations in space – has a major effect on the representation of territory and on identity formation in various stages of a country’s history, as reflected in population distribution, activities and relationships, the new developments in Oman helped to overcome the traditional vulnerability of the inherited dislocated territory. Regional groups and tribes do not have a territorial basis anymore. They actually move in a bigger space, live from new activities and belong to a larger territory than the tribal ones. They identify themselves as a nation-state living in a national territory despite expressing their previous sentiment of territorialism through local customs, dialects and tribal showing off.

The underlying reason to look hard at agglomeration economies in production is that if agglomeration increases productivity (the amount of output we are able to produce with a given amount of inputs) then it can potentially increase earnings, income and standards of living. According to Krugman's work in 2005, when we consider countries, a 5% difference in productivity will translate into (roughly) a 5% difference in living standards.

Cities in the developing world are frequently much larger than their counterparts in industrialized countries. There are three types of shared production inputs in the agglomeration literature: labour, infrastructure, and intermediate inputs. The sharing of these inputs is considered to be behind observed agglomeration. Broadly, these causes relate to the supply side in the economy. From a firm’s perspective, spatial clustering of firms enables specialization in labour, since certain tasks outside the core business of a firm can then be outsourced locally.

The idea here is that access to thick localized labour markets reduces the cost to firms, since there is a readily available supply of labour with specialized skills.

Agglomeration of firms allows for more efficient labour market matching that reduces transaction costs. That is, the availability of workers (supply) and employers (demand) in geographical proximity enables more efficient job market matching outcomes. The transmission of knowledge is attributed to the agglomerated nature of cities, since high-density employment-centres increases the probability of interaction between workers.