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In: Economics

Answer the following questions about diversified v.s. specialized cities (a) What kind of agglomerations are mostly...

Answer the following questions about diversified v.s. specialized cities

(a) What kind of agglomerations are mostly provided by diversified cities? By specialized cities?

(b) Urban Economists Duranton and Puga present evidence that in France over 7 out of 10 firms relocate from diversified to specialized cities. What makes firms start their lifecycle in diversified cities and relocate to specialized cities?

(c) Auto industry emerged in Detroit which was a diversified city at the beginning of the 20th century. But major firms like Ford and General Motors did not leave Detroit. Is this consistent with your answers to a previous question? Why yes or no?

Solutions

Expert Solution

Ans:-

Cities which provide markets and also provide services such as banking, insurance, transport, labor, consultants and financial advice, become urban centres called as agglomeration economies.

Specialized city: It is a city that specializes in a kind of good/service production. Example- Detroit in USA and Hyderabad(It Services)in India.

Diversified cities: The cities which are diversified in not only in industrial activities but in culture also.

a. Agglomerations provided by specialized cities and diversifed cities:

Specialized cities:

a. Low cost labor

b. Easier Availibility of raw materials

c. Development of associated services like transport,recreation etc.

d. Better framing of city plan as per industries need.

diversifed cities:

a. city can deal with economic fluctuations better.

b. Diversity can reduce dependence on one industry.

c. All kinds of associated businesses develop from hotels to hospitals and from schools to recreation.

b. What makes firms to shift from diversified to specialized cities?

Firms shift to specialized cities to enjoy abundant availibility of labor. It may be able to exploit the already developed network of infrastructure and transport facilities. It may also happen that govt. declares a city as a special economic zone where moderate labor laws are present and also tax relaxation may be offered if firms are exporting. Firms may also like to take advantage of relaxed environmental laws. The firms

c.Ford and GM did not leave Detroit? Why?

This may have happened due to following factors:

1. Overspecialization of all factors of production for GM and ford in Detroit

2. The internal and external economies of scale.

3. Detroits ability to attract best workers.

4. Development of all ancillary industries nearby.

Detroit also specialized later on and became an automobile hub.


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