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This chapter critically examines the theoretical propositions that seek to explain the rationale and economic impact of special economic zones (SEZs) in developing countries and argues that the existing theoretical approaches do not fully capture the rationale and effects of SEZs. For a better understanding of the socio-economic impact of SEZs, it proposes an alternative approach based on the economics of agglomeration, in general, and industrial clustering, in particular. It integrates relevant theoretical accounts with an agglomeration-theoretic framework to develop an eclectic theoretical framework of their relevance and impact and provides a comprehensive criteria for their evaluation. It argues that SEZs are not an alternative strategy and, therefore, there is nothing ‘second best’ about them. They need to be viewed as a component of the broader industrial strategy and their development needs to be synthesized with the overall cluster development policy.

Because not even the largest MNC can afford to invest in every country, an important phase of the FDI cycle is the process by which a country chooses where to establish its foreign subsidiaries. The heterogeneity of business strategies and objectives means that no single guideline exists for manufacturing and services companies when selecting appropriate overseas sites. This chapter begins with a statistical breakdown showing the asymmetrical geographical distribution of MNCs, with emphasis on their concentration in industrial countries. Next, the various positive factors that attract MNCs to certain countries, including financial incentives, are examined in detail. A separate section examines the various conditions that tend to repel incoming FDI. A recurring theme is that those persons believing MNCs to be a negative force on host countries would applaud government policies to discourage their entry or impose comprehensive regulation; advocates of private enterprise would have the opposite value judgment.

Agglomeration economies emphasize the role that cities can play in speeding the flow of ideas. The core idea at the center of information-based agglomeration economies is that all of the knowledge builds on things that one learns from the people around. The central premise is that the presence of knowledgeable neighbors enables an apprentice steelworker to learn his craft, but it also makes a biotechnology researcher more innovative. The interaction of smart people in urban areas enhances the development of person-specific human capital and increases the rate at which new ideas are formed. A central paradox is that in cities, industrial agglomerations remain remarkably vital, despite ever easier movement of goods and knowledge across space. One of the facts that support the existence of agglomeration economies is the strong relationship between density and high wages. Understanding agglomeration economies requires moving beyond measuring the overall extent of agglomeration as revealed by housing prices, productivity, and population concentration and the exact mechanisms that make it more productive to cluster. The measurement of such nonlinearities is only one of the pressing topics for future research in this area.

Entrepreneurs are of key importance in translating creativity into economic output. Consequently the urban dimension of entrepreneurship is a subject of great interest. This chapter sets out a framework encompassing the process between entrepreneurial perceptions and entrepreneurial activity at the individual level and demonstrate how an urban environment can have an impact on this process. The chapter creates entrepreneurship indices for thirty-five world cities exploiting the Global Entrepreneurship Monitor (GEM) Database 2001-2006. We investigate differences between city-level and country-level for a selection of these indices and show that, indeed, most of them are higher for world cities than for the rest of their respective countries. Albeit very preliminary, the results provide an initial exploration of the entrepreneurial advantage of world cities.

There is a long history of urban thinking that has considered the role of the organization of production into firms in the generation of increasing returns. This chapter discusses an econometric analysis of the organization–agglomeration relationship. It considers the relationship between the corporate organization of production (into establishments) and the spatial organization of production (into cities). Agglomeration economies are inherently geographic in nature. It does not matter whether the increasing return arises from consumer–supplier linkages, from entrepreneurial spillovers, or from knowledge spillovers or labor market pooling. The chapter concerns the microfoundations of the external increasing returns that give rise to the agglomeration patterns observed in the data, and reviews the theoretical and empirical literatures on industrial organization and agglomeration. The models of the birth of small establishments and the magnitude of their operations are also estimated. This estimation is carried out at the census tract level, using within metropolitan statistical areas variation in local industrial organization to estimate the models.

This chapter returns to the question at the heart of economics as a social science since Adam Smith and his seminal work on the origins of wealth. Why are some nations rich and others poor? The focus here is on the role of cities, on “agglomeration” in the jargon of economics. We find little evidence in support of Jane Jacobs’s thesis that agglomeration is sufficient to independently trigger economic growth. After explaining the concept of “agglomeration economies,” the gains from spatial concentration, various obstacles to their realization are examined: deficient urban transport; insecurity; arbitrary governance; informality; and so on. Their full realization requires solid institutions, which all too often are lacking. Starting with the origins of the Industrial Revolution, we conclude that the impact of urbanization (greater agglomeration) is essentially allocational, shifting labor to more productive endeavors. The roots of technological innovation, which is at the heart of economic progress, run much deeper, taking us back to national cultures and institutions.

Chambers were initially small in number and focused in the main ports. This was explained by their political weight, experience of lobbying for private Bills for infrastructure development (especially wet docks and canals), and their focus on networks of economic and social exchange. This chapter shows that their diffusion was generally down the population rank-size distribution of cities, eventually penetrating the whole market for local voice. However, the chapter shows that there was important regional differentiation, and there were some notable barriers to diffusion as a result of resistance. In London this included resistance from central government. In centres, such as Bristol, Dublin, Cork, and Londonderry, it was resistance from the pre-Reform local corporation; other centres had mixed support from pre-existing bodies such as the Merchant Adventurers, Staplers, and commercial committees.

This chapter focuses on a potential source of agglomeration economies that has received particular attention: labor market pooling. A localized industry gains a great advantage from the fact that it offers a constant market for skill. A simple model is used to clarify the microeconomic foundations of labor pooling as a source of agglomeration economies and to motivate empirical analysis. The model is a version of the labor pooling model of Krugman which predicts that sectors whose establishments experience more idiosyncratic volatility will be more spatially concentrated. The chapter assesses the importance of labor market pooling as a source of agglomeration economies empirically and provides establishment-level data from the United Kingdom's Annual Respondents Database, which underlies the Annual Census of Production. The sectors whose establishments experience more heterogeneous employment shocks have greater potential to benefit from labor pooling and, to exploit this, will be more spatially concentrated. It is often argued that urbanization is more important for services than for manufacturing.

This chapter rehearses scholarship in economic geography on the territorial development of capitalism in general and globalization in particular. The chapter integrates finance into this argument, considering how the pursuit of portfolio diversification and the demand for liquidity (i.e. the ease of exit) among international investors provide a mechanism for institutional change and convergence to occur. However, the chapter makes an argument that while global finance is a powerful force driving convergence, modern global finance is in some ways tolerant of institutional variegation. It argues, on the one hand, that the principle of diversification demands differentiation, and on the other, that financial markets and actors frequently follow change emanating from other developments instead of acting as the instigators of such change.

Urbanization has both benefits and costs. This chapter summarizes research findings on how urbanization enhances productivity and economic growth in both rural and urban sectors, taking the case of India. It studies the relationship between urbanization and growth. Based on extensive data analyses of urbanization, it finds no impact of urban–rural inequalities on urbanization, but significant impact on the population of the largest city in the state. When accounting for the two-way relationship between urbanization and the rural–urban income ratio, it finds that urbanization increases urban–rural inequalities initially, but at higher levels reduces them. Urbanization benefits rural development since the chapter finds that it has a positive impact on increasing the rural–urban income ratio, and the evidence regarding remittances. Policy implications regarding telecommuting and investments in urban infrastructure are summarized. Lessons from India and the People’s Republic of China for each other’s urbanization are discussed.

Analysis of the health care sector provides a valuable window into the causes of variation in productivity across areas and the role of agglomeration in generating innovation and efficiency. Understanding the drivers of productivity differences across areas is crucial to designing effective public policies to promote growth and efficient use of resources. The agglomeration economies literature explores the positive link between productivity and city size or density: cities, by virtue of their density, may facilitate the generation, transmission, and acquisition of new ideas. This chapter concerns the drivers of differences in medical sector productivity to understand agglomeration economies better, particularly the role that information spillovers play in making some places more productive. This investigation into variation in the use of high-value, low-cost health care and high-cost, low-value health care has yielded a number of surprising facts. First, there is a large variation in the use of both innovations, but with different patterns across areas. Second, hospitals seem to learn from their neighbors about both forms of care at similar rates. These findings thus have implications both for the optimal design of public subsidization of quality-improving investment and for payments for lower-value care through public insurance programs such as Medicare.

This chapter examines the tight connection between liberal norms, market society, and global city formation and growth, arguing that the size and scope of the agglomeration economies that global cities represent could only have emerged within a form of global market society. The creation of a global order that extends the scale of market society recalls the earlier ‘great transformation’ critiqued so effectively by Karl Polanyi. In particular, the features of the global city identified in the early chapters of the book mean that global cities are themselves likely to be key sites of systemic contention and instability in the coming century. The chapter also argues, however, that many of the capacities and capabilities that global cities have derived from the extension of global market society have the potential to be reoriented to more progressive forms of political order.

This chapter examines India’s urbanization and urban system. It shows that urbanization in India continues to be driven by natural increase and reclassification of rural settlements into urban, with rural-to-urban migration playing, at best, a modest role in the urbanization process. Recent economy-wide shifts including higher economic growth have made little impact on either the pace or the structure of urbanization, which continues to be dominated by a large number of small towns and a small number of large cities. India’s urban system displays neither primacy nor does it conform to the rank-size distribution. Upper-tail cities are not large enough to fit into the rank-size distribution and the populations of the lower end are smaller than the predicted values, raising questions about their capacity to generate scale and agglomeration economies. Marked variations are observed in urban systems across states. This chapter emphasizes the need for further research to help understand the urban systems of India’s federal structure.

There are two misconceptions about why Midtown emerged. First is the bedrock valley and second is Grand Central Station. This chapter demonstrates the true cause of Midtown’s rise as a skyscraper district. First, the chapter discusses the theory of business clustering and agglomeration economies. Next, the chapter discusses the rise of shopping districts north of 14th Street, which developed to cater to the needs of upper and middle-class residents who had been moving north on the island since the 1830s. Then the chapter turns to evidence from New York directories demonstrating that Midtown was born in the 1880s around Madison Square. The skyscrapers constructed there were to house specific industries that had left Downtown to be closer to consumers, such as newspaper publishers and architects. Lastly, this chapter documents the northward movement of Midtown over the twentieth century, and its movement was seemingly blocked by Central Park.