ABSTRACT
Intuitively, industry agglomeration includes two types of economic phenomena. First, viewed on a large regional scale, fragmentation is evident in the spatial distribution of non-agricultural industries (especially tradable manufactured goods). For example, some regions abound with non-agricultural industries, while economic activities and population are sparse in most regions. If observing from afar, the distribution of human economic activity could be seen to be concentrated in just a few regions of North America, the EU, and North-east Asia. In China, since 1978, the coastal regions have become the place where manufacturing is concentrated. Second, viewed on a small regional scale, agglomeration is reflected in the differences and efficiency gaps between city and countryside, large cities and small cities. Based on these economic phenomena, this chapter will divide industry agglomeration into two categories: large geographical scale industry and small geographical scale industry – and, to the authors’ knowledge, such a classification has never been made before. Another reason to make such a classification is the fact that the theoretical foundation of these two types of industry agglomeration is different. The basis for large geographical scale industry agglomeration is New Economic Geography theory, which generates pecuniary externalities (Fujita and Thisse, 2002). Opinion on this theory has more or less reached a consensus. The basis of small geographical scale industry agglomeration is urban economics, which generates technological externalities (Fujita and Thisse, 2002). However, opinions on its micro-level fundamentals are far from unanimous, and may remain in a “much to be said on both sides” situation long into the future.
