Causes And Effects Of Industry Agglomeration Formation

Interest in the role of external economies and industrial clusters as an influence on regional growth and change has grown at present , supported by traditional theory of economics and the development of new thinkings in regional economics and industrial organizations. The doctoral thesis is focused on the causes of the formation of industrial clusters and agglomeration in economy. Based on the definition and analysis of the conception of industrial agglomeration, the thesis takes review and comparative study on the agglomeration theory and its development in history, exploring the connection between the historical thinkings and contemporary theory of agglomeration. The study shows that flourishing contemporary theory of agglomeration represents the renaissance of historical economics of agglomeration, and development trends of contemporary economics and economic geography, industrial economics and spatial economics in integration. The natural endowments are among the causes of the formation of industrial agglomeration and some industries are localized in special areas with special natural resources. The geographical concentration of a industry leads to access to the place of natural resources and the reduction of transportation costs. Comparatively, division of labor and regions, institutional differences and other factors are more important causes of industrial agglomeration. Among the factors relating to the causes of industrial agglomeration, entrepreneurship plays an important role of the location choice of a firm and the formation of industrial districts. This thesis outlines the development of a industrial cluster through the effects of entrepreneurs who adapted to both constructive innovation and new opportunities, creating the factors and conditions that facilitated their business interests.Typically, the geographical localization of industry and the formation of agglomeration economy are explained as consequences of externalities such as labor force pooling, middle product putting and technology spillover according to Alfred Marshall. The thesis explains beyond Marshallian factors that the division of regions, which derives from endogenous comparative advantages with increasing returns to scale, and institutional transformation are real inherent causes of industrial agglomeration. Consequently, "the historical accidents" explaining industrial localization in Krugman's theory is just inducing factor, and the real causes of continuing accumulations of industrial clustering after "historical accident" are particular circumstance and economic environment in history. Case studies of Chinese circumstance in the thesis explain that location choice of FDI follows a specified pattern and some agglomerations of industries are caused by FDI business chains as well as specialized structures of market, and the perspective of agglomeration of the bicycle industries Kunshan and Jurong counties in Jiangsu evidences the capital flow model of industrial agglomeration. Actually, industrial clustering as well as transactions costs and the institutional changes are all determinants of multinational enterprises' behaviors of location choices. Industrial agglomeration has an influence on competitive advantage and economic performance, The agglomeration affects competition in three broad ways: first, by increasing the external economy and productivity of firms within clusters, and enhancing the industrial competitiveness of a region; second, by increasing the endogenous comparative advantage and division effects, and improving the regional economic performance; and third, by accumulating economic externalities and productivities the both industries and regions, and hence increasing a nation's competitiveness.