Systematisation of factors behind the agglomeration effect Текст научной статьи по специальности «Экономика и бизнес»

DOI: 10.29141/2658-5081-2021-22-4-7 JEL classification: R12, O12, O18, B31, D01

Yuriy V. Pavlov Samara State University of Economics, Samara, Russia

Systématisation of factors behind the agglomeration effect

Abstract. Urban agglomerations are increasing their role in Russia and across the world's economies, and understanding of the factors behind the effect of these settlement systems is essential for their efficient management. The paper studies the essence of agglomeration and the effects generated by its functioning on the basis of the literature review with respect to identifying, describing, grouping and typifying the factors of agglomeration economies. Spatial economics constitutes the methodological basis of the research; the author applies methods of analysis, synthesis, grouping, and classification. The author presents own definition of agglomeration synthesised allowing for the two main attributes of this phenomenon: concentration and interaction; suggests a classification of factors behind the agglomeration effect that include localisation, urbanisation, settlement and deagglomeration effects, economies of scale, institutional factors. For the economies of scale, localisation and urbanisation effects the author constructs a typology consisting of 25 factors, which may underlie further quantitative research. The auhtor decomposes urbanisation effect into three subgroups: the impact of the economic development, diversification, population quantity and quality. Such characteristic reflects the complex composition of this effect and helps to avoid excessive simplification during its measurement. The researcher proposes a new group of factors, which takes into account the influence of the settlement system. The results can become a theoretical basis for further practical research into the decision-making on enhancing the competitiveness of firms, industries, and economy in general and be useful for quantitative measurements of agglomeration effect and goal setting for the development of agglomeration system.

Keywords: agglomeration effect; agglomeration; economies of scale; localisation effect; urbanisation effect; settlement effect; diversification; theory of regional growth.

For citation: Pavlov Yu. V. (2021). Systematisation of factors behind the agglomeration effect. Journal of New Economy, vol. 22, no. 4, pp. 116-138. DOI: 10.29141/2658-5081-2021-22-4-7 Received April 16, 2021.

Introduction

Roughly half of Russia's population lives in large and largest agglomerations, whose influence and appeal continue to grow. Agglomeration centripetal tendencies occur due to the colossal opportunities for entrepreneurs, population, and government bodies arising as a result of the agglomeration effect [Izotov, 2017; Giuliano, Kang, Yuan, 2019]. These trends are characteristic of all countries, which is reflected in the growth of publications on the topic of agglomerations indexed by the Web of Science database: in the 1990s their number increased from 146 to 5,488, in the 2000s this figure went up to 20,278, and in 2015 it reached 32,231 [Fang, Yu, 2017].

At the same time, the essence of the agglomeration effect is not always comprehended correctly. Some incredible successes are often expected from urban agglomerations, while without understanding the underlying economic agglomeration processes, these successes can be awaited forever. Frequently, there is a lack of awareness of even the possibility of obtaining an agglomeration not only in metropolises, but also in small settlements. The study showed that for a deep understanding of the factors of this effect within an urban agglomeration, the processes within industrial agglomerations should not be ignored. In line with this, the factors are systemitised starting with the very basics of the agglomeration economies, from the level of an individual enterprise and up to giant megalopolises.

Therefore, the purpose of the study is to reveal the essence of the agglomeration effect by identifying its factors.

This work makes a methodological contribution to the exploration of the topic. The essence of agglomeration is revealed; the author's systematisation of groups of factors behind the agglomeration effect is suggested; the typology of factors in groups of localisation, urbanisation effects, economies of scale is introduced; subjects of the agglomeration effect research are differentiated.

Genesis of the question on the factors behind the agglomeration effect

The agglomeration effect is researched by the following regional and spatial theories: the German school of spatial analysis (19th - early 20th centuries, Thunen, Christaller, Losch, Germany)1; theory of industrial location (early 20th century, Weber, Germany); theory of urban concentration (late 1940s, Hoover, the USA); French sociological school (1950s, Perroux, Beaujeu-Garnier, Chabot, France); school of urban studies (1960s, Isard, the USA); theory of cumulative growth (1970s, Myrdal, Hagerstrand, Sweden; Hirschman, Friedman, the USA; Perroux, Boudville, Pottier, France; Richardson, Great Britain; Lasuen, Spain; Giersch, Germany); theory of agglomerations (1970s, Krugman, Romer, the USA; Faini, Great Britain); new urban economy - new

1 Hereinafter, the period, the surnames of scientists, and the country of origin are indicated in brackets.

economic geography (1990-2000s, Fujita, Japan; Krugman, Glaeser, O'Sullivan, the USA) and others [Ulyaeva, 2017, pp. 18-20].

To form the information base of the survey, a combination of expert and algorithmic methods of literature selection was used. The expert selection provided for familiarisation with the works - primary sources of the above authors; if it was impossible to find any of them in Russian or English, its description was used in literature reviews. This approach allowed making a kind of 'return to the roots' of the issue of the agglomeration effect and thus coming closer to settling the problem of contradictions in understanding the essence of agglomeration. However, for the purposes of urban agglomeration management, it is important to understand not so much the genetic development of this issue as the very essence of agglomeration and the factors behind the agglomeration effect. Therefore, like in a number of other studies (cf. [Animitsa, 2013]), the article offers a generalised view of these factors.

Since the limitation of the expert method is some subjectivity of the selection of sources, an algorithmic approach was used as an auxiliary one. The literature search was performed using the keywords "agglomeration effect", "agglomeration", "economies of scale", "localisation effect", "urbanisation effect", "settlement effect", "diversification", "theory of regional growth" formed as a result of a series of iterations when immersing in the research topic. The papers were searched in eLibrary.ru, the Russian scientific electronic library, among the journals included in the List of the Higher Attestation Commission, selected by relevance (if necessary, the list of references to a particular work was investigated) and in ScienceDirect, an international peer-reviewed literature platform, among the journals on the subject under study. Afterwards, we reviewed subjectively the most interesting (containing new ideas) from algorithmically selected sources.

Further, we will consider the following questions: what is the essence of agglomeration and agglomeration effect? what entities are its sources? what are the factors behind the agglomeration effect?

Agglomeration, its properties and entities

The term "agglomeration effect" is derived from the term "agglomeration". There are many definitions of agglomeration and its subtypes (such as, for example, urban agglomeration). This is due to the variety of approaches to the analysis of this phenomenon, including economic, geographic, sociological, managerial, etc.

In this study, agglomeration refers to the concentration of interacting entities. This short definition includes two necessary properties of agglomeration and is basic for all other approaches, which expand it, specifying the types of entities, ways of their interaction, etc.

The indicated properties make it possible to separate agglomeration from "nonagglomeration" and are substantiated by the works of the classics of spatial economics. Thus, the property of concentration of entities in an agglomeration can be found in Marshall, who did not use the term "agglomeration" in his main book Principles of Economics, preferring the term "concentration". It is Marshall who is often called the founder of the agglomeration economy [Almeida, Moraes Rocha, 2018; Sm^tkowski, Celinska-Janowicz, Wojnar, 2021] and cluster economics [Franco, Esteves, 2020, p. 40]. Similarly, agglomeration meant concentration for Christaller (for example, in the phrase "the degree of agglomeration in central places") [Christaller, 1966, p. 27, p. 46].

The property of the interaction of entities is based on the works of Smith, who noted the importance of the interaction of economic entities, if places with an increased population density are formed [Smith, 1962, p. 29]. In the absence of interaction, concentration as such is not a sufficient condition for the occurrence of an agglomeration effect.

Based on the above definition of agglomeration, the agglomeration effect (or agglomeration economies) will be understood as an additional socioeconomic effect due to the concentration of economic entities and the growth of their interaction in comparison with their scattered and autonomous development. For the first time the term "agglomeration economies" was introduced into circulation by Weber, who referred to the concentration of production as a factor of its origin [Weber, 1929, p. 126; Nakamura, 2013]. The relationship between spatial concentration and the resulting agglomeration economies was traced by Richardson [1977]. The confusion of the concepts "factor" and "property" is not accidental: it is the named basic properties of agglomeration that are the basic factors of agglomeration economies.

Without the manifestation of at least one property, the analysed object is not ag-glomerative (at best, it can be classified as protoagglomeration). In this case, additional conditions can be introduced concerning the degree of manifestation of properties, their direction. For example, Weber believed that a genuine ("pure" or "technical") agglomeration can only be a concentration of enterprises with an orientation towards production opportunities, and not towards a sales market or raw materials [Weber, 1929, p. 135]. However, later Lösch removed this restriction, putting forward the idea of an agglomeration of "pure consumers" (administrative centers, military garrisons, university centers, etc.) [Lösch, 2007, pp. 123-126; Plaziak, Szymansk, 2014, p. 374].

Currently, the term "cluster" is often used in relation to groups of concentrated and interacting enterprises [Porter, 2000, p. 207]. In Russia, cluster has similarities with the territorial-production complex developed by Kolosovsky [Lazhentsev, 2014, p. 141]. The terms "cluster" and "agglomeration" can be used interchangeably [Fun-deanu, Badele, 2014].

The above raises a number of questions about the entities of agglomeration: what kind of entities should be concentrated in agglomeration? what quantitative value of concentration is critical (and how is concentration achieved: through spatial placement or through the development of transport)? in what area should the interaction between the entities take place? how intense should this interaction be?

There are different types of agglomerations, depending on the type of concentrating entities:

1) consolidation within a separate enterprise [Weber, 1929, p. 131];

2) a group of enterprises ('social' agglomerations [Weber, 1929, p. 131]);

3) a separate settlement ('intracity' agglomeration [Richardson, 1977, p. 51]);

4) a group of settlements ('intercity' agglomeration, when a system of two or more cities is formed [Richardson, 1977, p. 51]).

We can logically assume that all types of agglomerations have their own characteristics. However, Lösch believed that the issues of population concentration, enterprises belonging to one or multiple industries are of the same type [Lösch, 2007, p. 45]. This approach leads to a confusion of concepts. This way, for Lösch, a city is nothing more than an agglomeration of a group of enterprises (or one large enterprise) [Lösch, 2007, pp. 117, 134]. Similarly, the growth centers (a term proposed in continuation of Perroux's ideas by his follower Boudeville) are defined as settlements with enterprises of propulsive industries [Kuznetsova, 2002; Vertakova, Polozhentseva, Klevtsova, 2015, pp. 751-753].

The question of the uniformity of the agglomeration principles can be deepened through studying the quantitative significance of the concentration and intensity of interaction between economic entities. It is possible to measure concentration and interaction using absolute and relative indicators that are associated with the economic situation and technological development. The lack of quantitative estimates will lead to the fact that a metropolis and the countryside (and even the entire planet) can be equally attributed to agglomeration [Fujita, Krugman, Venables, 1999, p. 1]). With a view to the basic factors of agglomeration economies, this is not an error, but nevertheless it is essential to acknowledge that there are some qualitative differences in factors depending on the scale of the agglomeration.

One option for eliminating this contradiction is the differentiation of entities according to the criterion of the presence of propulsive industries (Boudville). However, according to this logic, the system of interacting small towns will not be considered an agglomeration, which, of course, is not true. Another option is the opposite of Lösch's position, according to which, for the manifestation of certain agglomeration factors, an appropriate scale of agglomeration is needed

(within a separate enterprise, in a giant metropolis, within the entire planet, etc. [Fujita, Krugman, Venables, 1999, p. 1]). Accordingly, we can say that, depending on the degree of manifestation of the agglomeration effect, there are limited and full-fledged agglomeration formations. Not all spatial theories contain quantitative estimates [Limonov, 2014], so we should rather leave this problem for further research.

Another issue of quantitative analysis is finding out the reasons why, despite the profitability of concentration, there are still small enterprises, small settlements. The answer is the presence of different sectoral values of economies of scale and transport costs [Christaller, 1966, p. 66]. At a certain distance from the enterprise, transport costs become so high that this allows its competitor to retain its sales market [O'Sullivan, 2002; Lösch, 2007, pp. 16-17]. The city is completely dependent on the city-forming base, that is why the existence of remote enterprises allows saving remote settlements. The spheres of interaction between the entities are discussed below.

Groups of factors behind the agglomeration effect

Let us further consider the main groupings of factors behind the agglomeration effect. Table 1 shows some approaches to their identification.

Table 1. Examples of grouping the factors behind the agglomeration effect

Authors* Groupings of factors behind the agglomeration effect Features of the approach

Duranton, Puga [2004] 1. Mechanisms for joint use (indivisible objects, diversification, specialisation, risk reduction in the labour market). 2. Mechanisms of comparison (better selection of workers and employers). 3. Learning mechanisms (creation, dissemination, accumulation of knowledge) Original author's approach. The differences between domestic economy, intra-in-dustry and intersectoral economies are disclosed insufficiently. For each factor a mathematical model is provided.

Animitsa [2013] 1. Positive effects: 1.1. Localisation effect (aligned development of related industries; joint use of infrastructure; rental models; common labour market, knowledge "overflow"). 1.2. Urbanisation effect (an increase in the number and density of the population and the city's economy; territorial proximity to the labour and sales markets). 2. Negative effects The ability to develop this research by expanding the number of factors and their groups

Table 1 (concluded)

Authors* Groupings of factors behind the agglomeration effect Features of the approach

PWC** 1. Specialisation. 2. Concentration of resources, which reduces transaction costs. 3. Concentration of intellectual capital. 4. High quality of life. 5. Negative effects. 6. Effective agglomeration management (coordination of spatial development, resource allocation, leveling the quality of services, effective taxation) Mixing of internal and external economies, factors and consequences of the agglomeration effect (for example, a high quality of life is a consequence, not a factor). Emphasis on management issues as a condition for obtaining the agglomeration effect

Notes:

*In addition to those proposed by these authors, there are alternative approaches: 1) ignoring the economies of scale as an element of the agglomeration effect (contradicts the works of the founders of the agglomeration approach, for example, the ideas of Weber); 2) competition as an element of the agglomeration effect on a par with economies of scale, localisation, urbanisation (Porter's ideas are being developed).

**PWC. (2017). Economies scale. The first global ranking of agglomerations. Full version. 226 p. https: // www.pwc.ru/ru/publications/agglomerations.html. (in Russ.)

The classification by Animitsa became the basis for the author's classification. We supplemented the number of groups spotlighting the agglomeration effect's direction, the environment of manifestation and types of entities (Table 2). Compared to other approaches, this systematisation has an added group of factors of the settlement effect, and a multi-level system for considering the factors (from an individual enterprise to the economy as a whole), as well as takes into account the deagglomeration effect and institutional factors.

Table 2. The author's classification of the factors behind the agglomeration effect

Factors Criterion

Direction Environment Entity Factorial variables

Economies of scale Positive Internal Separate enterprise N employees, products

Localisation effect External One industry N enterprises, employees, products

Urbanisation effect Many industries N enterprises, products, structure of the economy

Population N population, human capital

Settlement effect Settlement system N settlements, population distribution

Institutional factors Institutions Fragmentarity of authorities

Deagglomeration effect Negative Classification similar to the group of positive factors

All the variety of factors behind the agglomeration effect are derived from the two basic agglomeration factors, which can be divided into two groups depending on their direction - positive or negative. These groups, in turn, can be considered within the framework of the internal and external environments, taking into account the entity. In accordance with this approach, six main groups are identified: economies of scale; localisation effect; urbanisation effect; settlement effect (suggested by the author); deagglomeration effect; institutional factors. The general sequence of the appearance of the agglomeration effect is shown in Figure 1.

Fig. 1. Factors behind the agglomeration effect

At the next stage of our research, we will decompose each group.

Economies of scale (intra-organisational economies). This effect is the internal economies that arise within an individual enterprise with the growth of its activities. The founders of spatial economics attributed this effect to agglomeration [Weber, 1929]. An enterprise of significant size has such a powerful economies of scale that it can replace agglomeration interaction with other enterprises [Limonov, 2020, p. 30]. Next, we will list the factors in terms of economies of scale.

Specialisation. The division of labour in the enterprise leads to specialisation, which is the principal source of growth in labour productivity. A large enterprise can afford to hire more employees and embark on a deeper specialisation, create special ancillary production [Marshall, 1920; Weber, 1929, pp. 128-130]. Owing to specialisation, skills in performing one operation improve, time is saved due to less frequent switching to other types of activities, and the simplest tasks are mechanised [Duranton, Puga, 2004]. The scale of specialisation is determined by the size of the market: the

larger the market, the stronger it is [Smith, 1962, p. 30]. If the market is small, there is no point in specialising. This phenomenon underlies the well-being of people: thanks to the competent organisation of labour, the quality of life of a hardworking European peasant of the 18th century exceeded the quality of life of the rulers of African tribes [Smith, 1962, p. 26]. Specialisation within an enterprise can lead to the territorial separation of its divisions. In 1966, Pred substantiated this division: innovative developments are made in the centre of the agglomeration, the main production is moved to the periphery [McCann, van Oort, 2009, p. 23].

The use of indivisible means of production. With a rise in production, the workload of equipment increases, which leads to a faster payback. A large enterprise can purchase more expensive and advanced equipment, since it has the ability to recoup it [Weber, 1929, pp. 128-130].

Marketing benefits. A large enterprise can make economies a result of working with large batches of raw materials and products [Marshall, 1920, pp. 161-163], including via obtaining discounts and avoiding intermediaries [Weber, 1929, pp. 128-130]. The presence of many product lines leads to their cross-promotion [Marshall, 1920, pp. 161-163]. A large enterprise has a better reputation than a small enterprise [Marshall, 1920, pp. 161-163]. The material expression of this is the cheapening of loans [Weber, 1929, pp. 128-130] and the ability to quickly introduce new product lines. It is easier for such an enterprise to overcome barriers when entering the market; it has a higher threshold of stability in case of economic cataclysms. In addition, it is able to form its own market for semi-finished products, which saves on warehousing and, as a result, does not withdraw money from circulation [Weber, 1929, pp. 128-130].

Diffusion of innovation. In a number of big companies, there is a practice of transferring employees from one company division to another according to a specific schedule. As a result, there is an exchange of experience between the company departments.

Interaction with authorities. A large enterprise saves on urban management and utilities infrastructure due to the receipt of discounts and tax deferrals. The likelihood of such preferences is especially high for city-forming enterprises. In addition, a major enterprise has the necessary amount of connections and resources to lobby tacitly or publicly its interests in the authorities.

Influence of transport. Concentration can be achieved through a reduction in geographic or economic distance. The transport allows reducing the distance to help specialised enterprises emerge. Otherwise, subsistence farming is likely to develop.

Localisation effect (intra-industry economy). The localisation effect is a kind of external economies, which are achieved by the concentration of many homogeneous small enterprises in separate areas [Marshall, 1920, pp. 152-153], i.e. only enterprises

belonging to one industry are considered. Subsequently, ideas about the localisation effect evolved and were called MAR effects (short for the surnames Marshall - Arrow - Romer).

It is noteworthy that the localisation economies within the industry is an analogue of economies of scale in one enterprise; the factors for obtaining these effects are the same [Weber, 1929, pp. 128-130].

Specialisation. The division of labour no longer takes place within just one company, but within an industry, when enterprises specialise in a particular production process. Ancillary production is being created, which ensures an increase in labour productivity and competitiveness of enterprises participating in the chain [Lösch, 2007, pp. 118-122]. Marshall cites pre-revolutionary Russian family enterprises as an example of the localisation effect, which grew to the size of villages, when each settlement specialised in the production of one element of the final product [Marshall, 1920, p. 154].

Specific-industry infrastructure. There is a joint use of indivisible means of production in the form of objects of highly specialised industrial infrastructure [Lösch, 2007, pp. 118-122].

Marketing benefits. A wide range of suppliers and consumers leads to savings on warehousing and the ability not to withdraw money from circulation (orders of a significant number of end manufacturers allow eliminating subcontractors' peaks and dips, whereas confidence in transactions at any time is given by the existence of many counterparties). There is a joint performance in the external environment (for example, common trademarks, all kinds of self-regulatory organisations, joint purchases, etc.).

Diffusion of innovations within the industry. In the agglomeration, the chances of obtaining new knowledge and technologies are growing as a result of interaction with neighboring enterprises [Gvozdeva, Kazakova, Pospelova, 2016, p. 3507]. The exchange of ideas within enterprises of the same industry occurs through mechanisms such as industrial espionage, competitive intelligence and imitation [Glaeser et al., 1992, p. 1127]. In addition, it is in the places of the spatial concentration of enterprises where knowledge is transmitted faster due to direct communication between people (remote technologies are not able to provide the same high quality of communication). As a result, the training of workers in the agglomeration is accelerated [Ellison, Glaeser, Kerr, 2010, p. 1201]. Nobel laureates Romer and Arrow developed the topic of innovation diffusion and put forward the idea of endogenous economic growth based on science, as well as on the non-competitiveness of ideas (i.e., ideas do not decrease with use, unlike other goods) [Romer, 1986; Arrow, 1962]. A number of scientists attribute the patterns they identified to localisation effects (MAR effects).

Interaction with authorities. The main industry of the single-industry town will always be in the area of attention of the authorities and receive their support. In fact, officials themselves become specialists in the development of a certain industry.

Competition. The question of the role of competition in obtaining agglomeration economies is controversial. Thus, Marshall believed that local monopoly is better than local competition, since it allows turning externalities into internalities [Glaeser et al., 1992, p. 1131]. On the other hand, competition pushes firms to innovate, and as a result, there is a mutual incentive for concentrated companies in comparison with their isolated development, when they could share markets due to the increase in transport costs. We can obseve the idea of the so-called spatial competition: ceteris paribus, competition with territorially closest subjects is more intense than with distant ones [Proost, Thisse, 2017, p. 9]. At the same time, the competition of companies comes into conflict with the diffusion of innovations: an enterprise in conditions of diffusion will lose its innovative developments, therefore, unlike a monopolist, it is profitable to wait for the development of other people's innovations. This contradiction is overcome by the fact that companies must invest in research even despite diffusion, otherwise they will go bust even faster [Glaeser et al., 1992, p. 1131]. The issue of competition as a factor in the agglomeration effect is developed by Porter's theory of clusters, who traces the idea of clusters back to the works of Marshall [Novikova, 2018]. "Porter's competition" (Porter effect) is sometimes referred to as a component of the agglomeration effect along with economies of scale, MAR effects, and Jacobs effects [Groot, Poot, Smit, 2007].

Reduced transportation costs. Transport savings are manifested in a number of aspects. First, savings in trade are achieved when sellers are located close, which motivates the buyer to save on transport and immediately go to select goods in such a cluster [Marshall, 1920, p. 157]. Second, transport costs decrease with a geographically close location to suppliers of semi-finished products [Lösch, 2007, pp. 118-122; Ellison, Glaeser, Kerr, 2010, p. 1200]. Savings can be yielded due to shrinking economic (development of new, cheap modes of transport) or geographic (increasing density) distance.

Interaction between workers and employers within the industry. In places where single-industry companies are concentrated, a large labour market is being formed. The consequences appear for enterprises and for workers. Thus, enterprises have a growing chance of a faster recruitment of personnel [Gvozdeva, Kazakova, Pospelova, 2016, p. 3507; Lösch, 2007, pp. 118-122]. Entrepreneurs do not need to outsource employees from other territories. With positive shocks, the dependence of enterprises on workers declines. A large number of both facilitates their mutual selection according to the level of available and required skills. Accordingly, there are savings

on retraining of employees, and as a result, wages increase and unemployment goes down. Workers benefit from finding work in their specialty and in their community faster, without dependence on a single employer in the city.

Urbanisation effect. This effect includes a positive impact resulting from the growth of the entire economy of the city (and not just an industry), diversification of the economy, growth in the number and quality of the population in the settlement. The recipient of the urbanisation effect can be both individual enterprises and the population, public authorities. According to Hoover, this effect arises in a large city in a similar way to the emergence of new opportunities with an increase in the size of an enterprise due to economies of scale [Hoover, 1948, p. 120]. Sometimes, under the influence of the ideas of Jacobs, the urbanisation effects are identified with the diversification effects and called Jacobs externalities [Ferragina, Mazzotta, 2014]. The urbanisation effect is a complex one. To understand it, it is necessary to answer a number of questions: does the size of the economy affect the agglomeration effect? does economic diversification affect the agglomeration effect? how does the growth in the quantity and quality of the city's population lead to economic growth?

All factors of the urbanisation effect can be divided into three conditional subgroups.

1. The impact of quantitative economic growth.

Specialisation in the form of creating new enterprises in other industries (industry multiplier). For the emergence of demand for urban services industries, as well as for ancillary universal services (accounting, legal, consulting, etc.), a critical mass of customers is needed that could trigger the appearance of new industries in the quaternary sector. Such sectoral specialisation is possible due to an increase in the concentration of enterprises and leads to a rise in efficiency [Hoover, 1948, p. 120].

Industry-wide infrastructure. There is a joint use of indivisible means of production in the form of objects of industry-wide infrastructure, such as a railway station, electricity, roads, drainage [Lösch, 2007, pp. 123-126]. The more enterprises there are, the more new industry-wide objects appear (for example, a new seaport can be such an object, because the cost of port services decreases as a result of high load) [Hoover, 1948].

Marketing benefits. In a big city, the company does not keep many reserves in warehouses, which allows saving on storage and not taking money out of circulation; this effect is possible only if there is a large and stable demand [Hoover, 1948]. Larger cities win in the eyes of producers, because they offer better services to enterprises, have a wider and better labour market, lower insurance fees, cheaper loans and utilities [Hoover, 1948, p. 120].

2. The impact of the structure of the economy (diversification).

Inter-industry diffusion of innovations. If there are several industries in the city, an exchange of ideas between them begins (due to the flow of personnel, interaction of enterprises, industrial espionage, etc.). Some scholars consider the diffusion of innovations to be the main factor behind the agglomeration effect [Glaeser, 1999]. The exchange of technology between industries (for example, the introduction of leasing into the line of banking products, although leasing itself was invented in the agro-industrial sector) contributes to the development of the city's ability to increase the diversity of goods and services [Beaudry, Schiffau-erova, 2009].

Inter-sectoral interaction between employees and employers. Employees from other industries are hired in order to get access to special skills (for example, the engineering personnel flows from the defence industry into the algorithmic trading in financial instruments). Stable employment is achieved: the labour market becomes inter-sectoral, and unemployment in one industry is offset by the growth of vacancies in another industry.

Reduced transportation costs. Compared to single-industry towns, the presence of several industries in a city leads to external savings due to a decrease in transport costs for the transportation of goods and semi-finished products. There appears an externality for stores selling complementary goods [Lösch, 2007, pp. 123-126].

Sustainable economic development. A diversified city is better at surviving a downturn in one of its industries. In a single-industry town, it may be difficult to find employment for family members of workers. This problem can be resolved through the development of other industries [Marshall, 1920, p. 156-157]. Seasonal and market fluctuations for the settlement are smoothed out, structural changes are easier [Lösch, 2007, pp. 123-126].

3. The impact of population growth and quality.

There is no consensus on what comes first: a high population stimulates economies [Lösch, 2007, p. 125] or, conversely, the existing economies lead to population growth [Richardson, 1977, pp. 16, 18].

City multiplier. The concentration of the population leads to the emergence of new industries: a large city can create three times more demand in comparison with the demand generated by the same number of equally distributed population [Lösch, 2007, p. 125]. The idea was developed by Lowry: only a large settlement is able to create demand for objects with high economies of scale [Lowry, 1964, p. 5]. In the presence of a large population, rare professions appear that are in demand only in a large city (for example, the profession of a porter) [Smith, 1962, p. 30]. This factor is similar to the industry multiplier factor.

Endogenous growth. The limiting case of the city multiplier is endogenous growth, in which, thanks to a large population and the presence of propulsive industries, a self-sustaining economy is formed, whose growth can be based on internal factors [McCann, van Oort, 2009, p. 23; Gadzhiev et al., 2009, p. 18]. This way, urban agglomerations enjoy benefits compared to relatively small and 'classical', medium-sized cities (according to Boudville).

Growth of qualifications in the labour market. A larger city is more likely to have a highly skilled labour force [Hoover, 1948, p. 120], because it has higher wages and higher competition. In addition, the culture of its population is growing [Lösch, 2007, pp. 123-126]. The concentration of intellectual capital is one of the most important drivers of agglomeration economies.

Interaction with authorities and competition of territories. Lobbying of the interests of not an individual enterprise or industry, but of the entire city begins before the higher level of government. Marketing moves from the enterprise or industry level to the territorial level.

A territory finds itself in a managerial dilemma about the development: choosing between specialisation and diversification, deciding on priority of one or another factor behind the agglomeration effect [Angel, Blei, 2016]. In a planned economy, a more global dilemma is possible: an alternative is added in the form of creating giant enterprises. The solution cannot be unambiguous: the effects of localisation / urbanisation can alternate with each other in strength depending on the stage of the industry development cycle [Glaeser et al., 1992, p. 1151]. Moreover, after the first stage of diversification there are already several industries in the city, and taking into account the stage of their development also complicates the general perception. However, sometimes there are radical assessments. Thus, Jacobs unambiguously determined the superiority of the urbanisation effect over the localisation effect [Desrochers, Hospers, 2007].

Deagglomeration effect. The labour productivity of enterprises, the level of human capital development, and the effectiveness of government bodies in agglomerations are not always higher than in non-agglomeration territories [Kutsenko, 2012]. This is due to the side effect of concentration, called deagglomeration (or de-economy). According to Weber, deagglomeration effects are a consequence of the weakening of agglomeration factors as the concentration increases [Weber, 1929, pp. 132-133].

In this study, de-economy is included in the agglomeration effect, since it is caused by concentration, and due to its complex nature, it is included in a separate group of factors. This effect is described in several works [Richardson, 1977, p. 19; Fujita, Krugman, Venables, 1999, p. 4; Volchkova, 2009; Animitsa, 2013; Izotov, 2013, pp. 126-129; Postoiu, 2015, p. 659; Pavlov, 2019].

The dispersal of objects as a way to reduce de-economy can increase the length of communications, which will drive up the costs of the population [Weber, 1929, p. 128; Hoover, 1948, p. 179; Lösch, 2007, p. 123]. This could encourage residents to 'vote with their feet' in favour of a more skillfully managed settlement. Accordingly, de-economy affects the formation of the settlement system.

Settlement effect. This effect relates to the question as to what structural concentration of the population (and enterprises) is advisable to obtain the agglomeration effect, whether it should be in one settlement or in several. The question follows from the presence of the deagglomeration effect and is related to the question of the optimal size of the city's population. The agglomeration effect is developing in a group of settlements, which is a more complex object. The influence of the settlement system on the agglomeration effect is actually analogous to the influence of the structure of the city's economy (diversification), with the difference that now we are talking about the structure of the distribution of the population (and enterprises) in space. These factors can be included in a separate group that requires further study and development. The settlement effect proposed by the author differs from Lappo's framework effect [1997]. He understood it broader than the agglomeration effect [Lappo, 1997, p. 124] according to the following parameter: the benefit is achieved not only by optimising transport, but also by eliminating the factors of the deagglomeration effect (which are not limited to transport). The difference from the urbanisation effect is that the latter does not consider the issue of the structure of settlement.

Competition in complex settlement systems. Population growth can lead to the emergence of complex settlement systems (for example, as a result of suburbanisation processes), in which there is competition between settlements according to Tiebout model [1956]. The presence of such systems provides new opportunities, for example, improving the quality of services due to competition between municipalities, ensuring balanced development of the territory, increasing the environmental attractiveness of settlements, etc. The formation of an interconnected settlement system (in the sense of interaction between the population, enterprises, and government bodies of different municipalities) lays the foundations for the emergence of an urban agglomeration management system.

Specialisation. Within an agglomeration, settlements begin to specialise in performing a certain function (administrative, recreational, warehouse, production, etc.) [Lappo, 1997, p. 101]. This specialisation opens up opportunities for the development of the advantages of single-industry towns within the agglomeration.

Spatial balance of settlement. The spatial location of a city in the system of cities has a significant impact on the strength of the agglomeration effect. For example, in the

case of a small new city being built, it makes sense to locate it closer to a large city. At the same time, it is better to build a large city away from a large one in order to take advantage of its own agglomeration economies [Richardson, 1977, p. 51]. The well-known Zipf's rule [1949] belongs to the same factor.

Institutional factors. The approach to obtaining the agglomeration effect only through the concentration and growth of the interaction of entities can lead to an increase in de-economy, the elimination of which requires government intervention. This creates the prerequisites for identifying institutional factors of the agglomeration effect.

Institutions can be thought of as a set of organisations and norms of a political, legal, economic, social nature. Researchers have revealed various aspects of institutional influence, including on agglomeration [Smirnyagin, 1995; Zobova, 2003; Gaigne, Riou, Thisse, 2016; Ukrainskiy, 2017, p. 96]. Institutional factors are not considered in this paper.

The criticism of the concepts of the agglomeration effect should be mentioned separately. There are original "counter-agglomeration" theories that doubt the success of agglomerations and the known factors behind the agglomeration effect. For instance, a large market attracts many enterprises, but the most productive ones capture it as the most responsive to the presence of agglomeration effects [Combes et al., 2012, p. 23]. Thus, agglomeration will not make the weak strong, but will further strengthen the strong: thanks to the 'self-selection' of enterprises, 'the strongest survives' [Puga, 2010]. High labour productivity in an agglomeration can be hereditary if the 'craft' is passed from parents to children [Combes, Gobillon, 2015, p. 8]. Due to the effect of path dependence, enterprises are forced to maintain their location, even if it has become unprofitable, since this is associated with lower risks and costs compared to the transfer of capacities [Kutsenko, 2012, p. 10]. The centre of the agglomeration can receive 'rent' in the form of financial flows from the periphery, formed due to previously made investments in the periphery (in the extreme case, the 'capital rent'), but this is not the current merit of this centre, therefore, in order to strengthen its dominance, it must continue invest in innovation [Kurichev, Kuricheva, 2018]. In addition, the identification of the factors behind the agglomeration effect requires an individual approach to each industry due to the uniqueness of its technological processes and life cycle [Lavrinenko et al., 2019, p. 269].

Based on the results of the study, we will present the author's typology of the factors of economies of scale, localisation and urbanisation effects (Table 3). The factors are characterised by three criteria: the level of manifestation (economies of scale, localisation and urbanisation effects), the sphere and the degree of uniqueness (some factors are presented at all levels).

Table 3. The author's typology of the factors behind economies of scale, localisation and urbanisation effects

Level Sphere ^^^^ Economies of scale Localisation effect Urbanisation effect Uniqueness

Specialisation (differentiation of labour) Increase in skill while performing one operation; no switching between tasks; mechanisation; ancillary production Division of labour between enterprises of the same industry (semi-finished products) General economic infrastructure Pervasive factors

Indivisible means of production Faster return on investment Specific-industry infrastructure Division of labour between enterprises of different industries. Industry multiplier, savings on related services (insurance) Territorial marketing. Eliminating peaks and dips (similar to the localisation effect)

Education Diffusion of innovation between departments Diffusion of innovation between single-industry enterprises, industrial espionage Cross-sectoral diffusion of innovations

Marketing Overcoming barriers to market entry, saving on purchasing / selling, reputation, brand cross-promotion Joint territorial sectoral brands (for example, Ivanovsky textiles), purchases. Eliminating subcontractors' peaks and dips due to the large number of possible counterparties in the industry Territorial marketing. Eliminating peaks and dips (similar to the localisation effect)

Authorities Lobbying the interests of the enterprise (discounts on infrastructure, increased attention of the authorities) Lobbying the interests of the industry (increased attention to the basic industry of single-industry towns) Lobbying the interests of the territory to the higher level of government

Transport Spatial concentration makes specialisation possible (as a condition) Savings on transport: proximity of counterparties of the same industry, trade clusters Proximity of contractors in different industries, the savings are higher than in a single-industry town; trading clusters

Interaction between employees and employers - Orientation of firms in a certain industry to the labour market, orientation of specialists to clusters of firms. Simplified staff recruitment and job search, reduced shocks, better fit between staff and firm Flows of personnel between industries. An increase in the likelihood of finding a specialist of the required qualifications in a larger city Unique MAR effects and Jacobs externalities

Competition Competition leads to innovation compared to a monopolist Competition of territories (Tiebout model)

Population - Emergence of new industries, endogenous growth, competition between settlements Unique Jacobs effects

Influence of the structure of the economy on a settlement Sustainable development of the settlement, structural adjustments are better, stable employment, growth in the culture of the population, growth in sectoral diversification.

The subjects of the agglomeration effect research are shown in Figure 2.

Agglomeration-concentration (natural, artificial) of interacting entities

-

Subjects of the agglomeration effect research

Centripetal forces

Centrifugal forces

External economies (externalities)

Internal economies

One enterprise (economies of scale)

Only one industry (localisation effect)

Other industries, population, authorities (urbanisation effect)

Optimal size of enterprise

Optimal level of development of the industry in a settlement and a settlement system

Optimal population

Optimal size of the economy

(number of enterprises)

Optimal structure of the economy

Optimal distribution of the population (hierarchy in the settlement system)

Optimal distribution of enterprises (economy)

Optimal number of settlements

Approach to identification of subjects

By the direction of forces

By the environment of origin

By objects (coverage)

By economies of scale

By the localisation effect

By the urbanisation effect in a settlement

By the settlement

effect in the settlement system

Fig. 2. Distinctions between the subjects of the agglomeration effect research

The indicated distinctions between the subjects in the studies of the agglomeration effect can become a theoretical basis for quantitative research.

Conclusion

Essentially, agglomeration is the concentration of interacting entities. Without interaction, any concentration and any methods of increasing labour productivity will not be able to produce the desired effect. The agglomeration effect is a complex phenomenon. It manifests itself for enterprises, population, and government bodies and can be obtained both within a system of objects (settlements, enterprises) and within one large object (city, enterprise).

The factors of the agglomeration effect can be decomposed into positive and negative. The positive ones, in turn, are represented by internal and external economies. Internal economies are economies of scale. External economies combine a number of other effects: the localisation effect manifesting in economies within one industry; the urbanisation effect noted in economies achieved due to the quantitative growth of industries outside an enterprise, diversification (changes in the structure of the economy), quantitative and qualitative growth of the population; the settlement effect showing in economies during the reorganisation of the settlement structure; and, finally, institutional factors manifesting in the government authorities' activities to create conditions for the maximum development of positive externalities and reducing the deagglomeration effect.

Negative factors are represented by the effect of deagglomeration, the essence of which is that the optimum point in the concentration of resources, enterprises, population on the territory is passed through. As a result, deconcentration becomes expedient.

The novelty of the research is methodological in nature. We propose a more complete list of factors of the agglomeration effect and give their classification; present own typology of the factors behind economies of scale, localisation and urbanisation effects and a scheme for distinguishing between the subjects of the agglomeration effect research. The findings allow receiving a comprehensive vision of the development of agglomerations. The identified factors can be used in the goal-setting for the development of agglomeration systems.

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Information about the author

Yuriy V. Pavlov, Sr. Lecturer of Regional Economics and Governance Dept., Samara State University of Economics, 141 Sovetskoy Armii St., Samara, 443090, Russia Phone: +7 (846) 933-88-41, e-mail: Pavlov-mlad@mail.ru

© Pavlov Yu. V., 2021