Macquarie University
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Agglomeration economies, diseconomies, and city size: the case of Australian cities

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posted on 2022-03-28, 14:16 authored by Muheed Jamaldeen
This thesis examines the interplay between urban economies and diseconomies in Australian cities, and their relationship with productivity-maximising city size.Economic theory postulates the existence of an inverted U-shaped relationship between output per worker (productivity) and city size. Using the Au and Henderson (2005) (AH) model, we analyse this relationship for Australia. Given that the theoretical AH model imposes a monocentric circular urban structure, this thesis proposes a generalisation of the model that allows for non-circular polycentric urban structure. From a theoretical point of view, this extension illustrates the importance of transport efficiency, and housing affordability in improving urban-productivity outcomes. Empirical results suggest that the generalised version of the AH model is supported by the data. In addition, we find that the classic Marshallian scale effect is dominant in Australian cities. It is argued that this is because the knowledge economy (services sector) plays an important role in an advanced economy such as Australia. Empirical results are also used to estimate productivity-maximising city sizes for Australian Statistical Area 3 (SA3) cities. This shows that though the vast majority of Australian SA3s are operating below their productivity-maximising peak sizes, the output loss due to lack of scale is moderate for major SA3s. However, of the major CBDs in Australia, output loss is more than 20% for North Canberra, Brisbane Inner-North and Adelaide City.


Table of Contents

1. Introduction -- 2. New economic geography models and location theory -- 3. Agglomeration in the empirical literature -- 4. Theoretical model --5. Data and variables -- 6. Econometric analysis -- 7. Productivity-maximising peak size -- 8. Conclusion.


Bibliography: pages 80-87 Empirical thesis.

Awarding Institution

Macquarie University

Degree Type

Thesis MRes


MRes, Macquarie University, Faculty of Business and Economics, Department of Economics

Department, Centre or School

Department of Economics

Year of Award


Principal Supervisor

Tony Bryant

Additional Supervisor 1

Roselyne Joyeux


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