Evolutionary agglomeration theory: increasing returns, diminishing returns, and the industry life cycle

According to Marshall’s agglomeration theory, Krugman’s New Economic Geography models, and Porter’s cluster policies, firms should receive increasing returns from a trinity of agglomeration economies: a local pool of skilled labour, local supplier linkages, and local knowledge spillovers. Recent evolutionary theories suggest that whether agglomeration economies generate increasing returns or diminishing returns depends on time, and especially the evolution of the industry life cycle. At the start of the twenty-first century, we re-examine Marshall’s trinity of agglomeration economies in the city-region where he discovered them. The econometric results from our multivariate regression models are the polar opposite of Marshall’s. During the later stages of the industry life cycle, Marshall’s agglomeration economies decrease the economic performance of firms and create widespread diminishing returns for the economic development of the city-region, which has evolved to become one of the poorest city-regions in Europe.

Granular fertilizer drying and agglomeration in storage

In the manufacture of granular NPK fertilizer the product is cooled before packaging and storage in moisture-proof bags. It has been shown that the temperature of the fertilizer prior to packing is significant in that at high temperatures, drying of the granules takes place in the bag which causes an increase in the humidity of the air surrounding the granules and thus an increase in moisture content at the granule - granule interface. This surface moisture was shown to increase the likelihood of agglomeration in the fertilizer by a capillary adhesion/unconfined yield stress model. An iterative model was set up to establish conditions that would prevent drying occurring, which takes into account fertilizer drying rate, fertilizer cooling rate cooling rate and the effect of coating oils on the drying mechanism.

Hicks meets Hotelling: the direction of technical change in capital-resource economies

We analyze a two-sector growth model with directed technical change where man-made capital and exhaustible resources are essential for production. The relative profitability of factor-specific innovations endogenously determines whether technical progress will be capital- or resource-augmenting. We show that any balanced growth equilibrium features purely resource-augmenting technical change. This result is compatible with alternative specifications of preferences and innovation technologies, as it hinges on the interplay between productive efficiency in the final sector, and the Hotelling rule characterizing the efficient depletion path for the exhaustible resource. Our result provides sound micro-foundations for the broad class of models of exogenous/endogenous growth where resource-augmenting progress is required to sustain consumption in the long run, contradicting the view that these models are conceptually biased in favor of sustainability.