Agglomeration Effects Exist but Are Limited

Taina Haapamäki, Krista Riukula and Touko Väänänen

No 132, ETLA Brief from The Research Institute of the Finnish Economy

Abstract: Abstract In economics, the regional densification of economic activity is referred to as agglomeration. The effects of agglomeration are often referred to when discussing the wider economic benefits of transportation infrastructure projects. The magnitude of these effects has not been extensively studied in Finland. In this brief, we present results from a study that examines the effect of agglomeration on productivity in the Helsinki region. Agglomeration, defined as job-to-job accessibility, was found to have a positive effect on employees’ wages. However, the results at the establishment-level are less precise and statistically insignificant. According to the results, increased accessibility increases other operating expenses such as rents, potentially explaining the lack of statistically significant effects on establishment-level productivity. The results indicate that agglomeration benefits are predominantly intraregional, with interregional accessibility having little impact on these benefits. Consequently, the ratio between agglomeration benefits and direct benefits of transportation infrastructure projects varies depending on the project. Taxes and similar payments on increased wages due to accessibility increases could be included as a separate item in cost-benefit analysis.

Keywords: Agglomeration; Productivity; Transport project; Cost-benefit analysis; Accessibility; Wider economic impacts (search for similar items in EconPapers)
JEL-codes: R12 R41 R42 (search for similar items in EconPapers)
Pages: 6 pages
Date: 2024-01-23
New Economics Papers: this item is included in nep-eff, nep-eur, nep-ppm, nep-tre and nep-ure
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