One explanation is that these locations have natural advantages, such as proximity to a river. Another says that this concentration of households and businesses by itself generates productivity advantages in the form of agglomeration economies. In studying these agglomeration economies, economists have pursued two other questions. Do agglomeration economies exist and how big are they? And what are the precise sources of these agglomeration economies? In this article, Jeffrey Lin describes the evidence for agglomeration economies from job search and matching and then asks whether it may be large enough to offer meaningful explanations for differences in productivity and density.

This article appeared in the First Quarter 2011 edition of Business Review.

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