facilitates the international comparison of the intensity of economic activity between comparable
administrative regions.
3 An Agglomerate
The terminology of the new economic geography theory germinates from the seminal
theoretical literature of the regional economists. In his analytical framework of industry concentration,
Weber (1909) introduced the concept of ‘spatial agglomerate economies’ as a determining factor in the
location decision of a firm. Agglomerate economies arise from the extra reduction in production,
transportation, and communication costs, due to the clustering of intermediate and final goods-
producing firms in one location. Transportation and communication costs are all the costs incurred
through the interaction of firms with their input and output markets. These costs can be minimised if
firms cluster, thereby creating economies of scale and pecuniary agglomerate advantages.
Losch (1954), like Krugman (1978), has argued for the importance of population density in
agglomerate formations.3 He noted that,
'Spatial agglomeration such as, towns, are the result of agglomeration forces in
both the production and consumption sphere. These agglomerative forces may
be of a different nature ,for instance economies of scale, external economies,
and psychological attraction forces. In this way, the general interdependent
location problem is closely linked up with the analysis of urban settlement
atte-rns,^
Losch also recognised the relevance of regional non-uniform utility functions. Krugman (1978), on the
other hand, assumes a uniform utility function across regions. In describing and discussing Losch’s
location theory, Paelinck and Nijkamp (1975) point out that,
Thee existence of agglomerative forces leads to the concentration of different
production units in one spatial point. This concentration of production is
controlled by the minimisation of transportation costs within the entire
industrial complex. The assumption of agglomeration advantages and of
minimisation of integrated transportation costs, ... leads to bundles of industrial
centres and cities, in which a maximum number of different individual
------ production units will be located at the same place. In this way, the economic
3 Losch landscape will show areas with a high and a low industrial and urban
concentration.’