SP16 BWE: Agglomeration and its Implication in Economics

Student’s Name
Course
Instructor
Date
Institution
How Agglomeration Works
Agglomeration is a term referring to clustering of firms in one geographical location for mutual benefits CITATION Cha10 \l 1033 (Karlsson, 2010). Agglomeration occurs when firms are set up in the same geographical location due to the favorable business environment. Many companies located in a central location tap into many benefits that create an enabling business environment by having good infrastructural facilities, large skilled labor pool, proximity to production materials, favorable government policies among others. When companies are located in a common geographical location, they enjoy urbanization, industrialization and localization economies. Urbanization economies refer to the advantages the companies located in the same geographical location enjoy from the population and infrastructural developments. The agglomeration of companies gives them ability to share resources and enable the consumers to discover others in the same area. When one client visits one of the companies in the area, he/she is likely to notice another one for another purpose and either visit it or do business with it. Localization economies help the firms in the same geographical area to enjoy labor-pooling benefits, information sharing among other business benefits. Knowledge spillover is also common in agglomeration as information is likely to reach other firms within the same industry faster CITATION Mik10 \l 1033 (Peng, 2010). Agglomeration has a significant impact oninternational economy and here below are some of its positive and negative impacts.
Implications of Agglomeration to international economy
Agglomeration can lead to the establishment of new businesses. For example, a recycling factory can be set up on site to recycle the byproducts and make other useful products. This not only helps in conserving the environment but also in the creation of more job opportunities for more people. Through the newly established factories that recycle by-products of other factories, it reduces the global unemployment levels and contributes positively to corporate social responsibility of the industrial zone.
Lowering cost of production for goods due to accrued advantages of agglomeration brings healthy competition on the international market CITATION Ste07 \l 1033 (Tallman, 2007). Goods from an industrial zone of agglomerated factories and businesses are likely to be cheaper as they enjoy benefits of lower costs of production. The low cost of production is mainly because of lower transportation cost especially for goods, which pass through several production stages in different industries and are all located in the same geographical location. The cost of production lowers the cost of the goods and offers competitive prices on the international market. Producers located far from the dependent industries incur higher transportation costs of raw materials making their products relatively expensive.
Agglomeration affects the global labor market. Most skilled personnel are being forced to move to the agglomerated regions in search of employment CITATION Zha15 \l 1033 (Chen & Lu, 2015). This is because they think their chances of landing a job in...