Agglomeration Economies: A Bridge between the New Economic Geography and the Malthusian Theory,

The aim of this paper is to build a bridge between the New Economic Geography and Malthusian theory. Both theories seek to explain the phenomenon of agglomeration processes, yet along two different lines: Malthusian theory through differences in geographical factors, historical accidents, cultural and social factors and so on (first nature effects); the New Economic Geography through scale economies or knowledge spillovers (second nature effects). Based on this assumption, we use a methodology based on analysis of variance (ANOVA) proposed by Roos (2005) which we apply to a panel data of Italian Local Labour Systems (LLS) for the years 2001-2005. We are thus able to quantify how much of GDP can be derived from natural geographical circumstances (first nature elements) and how much from agglomeration economies or second nature elements (in our case, population and GDP). Our results reveal that although the gross second nature effect plays a major role in bringing about the agglomeration process, the net second nature effect appears relatively unimportant. By contrast, both first nature effects and the combined effect of the two forces are very important [JEL: R12, N30, O10, 040].