ancient cities

Other things being equal, each firm has an incentive
to establish itself close to the others, thus
fostering the agglomeration of firms. The centrifugal
force is less straightforward and involves
land and labor markets. The clustering of many
firms in a single area increases the average commuting
distance for workers, which in turn
increases the wage rate and land rent in the area
surrounding the cluster. Such high wages and land
rents discourage further agglomeration of firms in
the same area. The equilibrium distributions of
firms and households are thus a balance between
these opposite forces. In two seminal papers published
in the early 1980s, Fujita identified the
conditions to be imposed on communication fields
and commuting costs for a monocentric, polycentric,
or integrated urban pattern to emerge as the
market outcome.
The dominant view through about 1990 was
that agglomeration was a condition produced by
spatial externalities of various types, including
knowledge spillovers, matching externalities in
labor markets, and the provision of local public
goods. The more recent approach, with roots in
general equilibrium models of monopolistic competition,
focuses on demand side advantages arising
from clustering when agents have a preference
for variety and local competition is limited by
product differentiation. In 1988, Fujita developed
the monopolistic competition foundations of the
economics of agglomeration, which makes him
one of the founders of the new economic geography.
In The Spatial Economy, coauthored with
Fujita, Masahisa
283
Paul Krugman and Anthony Venables, Fujita provided
a synthetic application of nonlinear dynamics
to regional economics and international trade,
as well as to urban economics. This book is a
landmark in spatial economics and has established
new economic geography as an economic
field proper.
See also Journey to Work; Urban Economics
Further Readings
Jacques Thisse
Fujita, M. 1989. Urban Economic Theory. Land Use and
City Size. Cambridge, UK: Cambridge University Press.
———. 1988. “A Monopolistic Competition Model of
Spatial Agglomeration: A Differentiated Product
Approach.” Regional Science and Urban Economics
18:87–124.
Fujita, Masahisa and Tomava Mori. 1996. “The Role of
Ports in the Making of Major Cities: Selfagglomeration
and Hub-effect. Journal of
Development Economics 49(1):93–120.
Fujita M., P. Krugman, and A. J. Venables. 1999. The
Spatial Economy. Cities, Regions, and International
Trade. Cambridge: MIT Press.
Ottaviano, Gianmarco I. P. and Diego Puga. 1998.
“Agglomeration in the Global Economy: A Survey of
the `New Economic Geography.’” World Economy
21:707–31.
Parr, John B. 2002. “Agglomeration Economies:
Ambiguities and Confusions.” Environment and
Planning A 34:717–31.