Spatial effects of localization and urbanization economies on urban employment growth in Iran

Abstract

The emergence and growth of cities is affected through different factors. Urban economists have a broad consensus about the role of agglomeration externalities in the emergence and growth of cities. Urbanization agglomeration that is named Jacobs externalities, refers to the role of economic diversification in urban growth and leads to knowledge spillovers among different types of firms. Localization agglomeration is related to the concentration of firms activated in a special industry within a specified place. Following this concept, economic specialization is considered as a key factor to urban growth. The purpose of this research is to explore the impact of different types of agglomeration economies and their spatial lag effects on urban employment growth in 171 counties of Iran from 1996 to 2006. The indices are computed by the employment data in 3-digit industrial classification. Aggregate indices of specialization and diversification are calculated for all considered counties. Then, their effects are examined on the growth of urban employment. For considering the spatial impact of agglomeration economies, the spatial lags of indices are entered into the model. Results demonstrate an inverse U-shaped relationship between diversification and urban growth. Furthermore, findings for spatial Jacobs’s effects show positive relationships among counties of Iran. Specialization economies have a negative impact on employment growth. We do not find any evidence for the impact of spatial lag on localization of economies. Meanwhile, unlike the negative effect which the population has on its populated neighbors, employment growth increases, since the market potential expands. Key words: Localization, urbanizations, Jacobs’s externalities, Marshall-Arrow-Romer (MAR) externalities, urban employment growth, spatial effects.