Estimating Urban Agglomeration Economies for India: A New Economic Geography Perspective

Sabyasachi Tripathi

Theoretical and Empirical Researches in Urban Management, 2014, vol. 9, issue 2, 5-34

Abstract: The main objective of this paper is to provide answer to an important question: Are Indian firms or industries in urban areas operating under decreasing returns to scale or increasing returns to scale? Scale economies are one of the main assumptions of new economic geography models that posit the formation of agglomeration economies. For this purpose, we use Kanemoto et al. (1996) model for estimation of aggregate production function and to derive the nature and magnitude of agglomeration economies on firm level production in organized manufacturing sector. Using firm level data in 2004-05 from the Annual Survey of Industry, we find that urban firms in Indian industry operate under decreasing returns to scale. Therefore, in case of India, we find the evidence that urbanization is associated with negative external economies of scale that do not enhance productivity and do not drive urban growth and development. In addition, we provide explanation behind this phenomenon and policy options to promote agglomeration economies which will make Indian cities as engine of rapid economic growth.

Keywords: New economic geography; Urban agglomeration; Firm level analysis; Manufacturing industry; India. (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: Estimating Urban Agglomeration Economies for India: A New Economic Geography Perspective (2012)
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