Urban Agglomeration Economies in Iran and other persian gulf countries

By: Morteza Aminmansour


Urban Agglomeration Economies in IRAN and other Persian Gulf Countries


In the study of human settlements, an agglomeration is an extended city or town area, comprising of a built-up area of a central place (usually a municipality) and any suburbs (the usually residential region around a major city) link by a continuous built up area. The words urbanized area (Defined by the Bureau of the Census as a community with a population of 2,500 or more) can also be used as well.

Agglomeration economies are the powerful forces that help explain the advantages of the "clustering effect" of many activities ranging from retailing to transport terminals. There are three major categories of agglomeration economies, and they are as follows:

Urbanization economies: Benefits derived from the agglomeration of population, namely common infrastructures (utilities or public transit), the availability, and diversity of labor and market size. Also, Urbanization economies are associated with the size of the city (the city of Tehran). Urbanization economies benefit accruing to individual households or consumer-oriented activities, resulting from the agglomeration of populations and the urbanization of an area, or to other economic activities benefiting from the access to a general labor force. The population is assumed to have similar or complementary needs for residential infrastructures, schools, health-care, and other service activities.

Industrialization economies: Benefits derived from the agglomeration of industrial activities, such as being their respective suppliers or customers.
An Industrialization economy is a type of agglomeration economies; external economies (benefits, savings, cost reductions) resulting from the spatial concentration of industrial activities (from their joint utilization of local industrial infrastructure); as different from, or overlapping with localization economies, and also, urbanization economies.

Localization economies. Benefits derived from the agglomeration of a set of activities near a specific facility (auto part industry near” Iran khodro” or “Saipa” carmaker industry in Iran) , let it be a transport terminal, a seat of government power or a large university. Localization economies are associated with the concentration of particular industries (The Industrial City of Araak). Localization economies= (external economies of localization). Agglomeration economies (benefits, cost reductions) resulting from the concentration of the same or similar activities: benefits resulting from the local access to a specialized work force or the specialized reputation of a locality (to which some but maybe not all of these specialized activities contribute.
Urban agglomeration is the spatial concentration of economic activity in cities such as: Tehran, Isfahan (between 1960 –1980). Urban agglomeration can also take the form of concentration in industry clusters or in centers of employment within cities such as: Araak, Bandar Abbas, Tabriz, and Karaj. These cities contain roughly 70 percent of the Iran population, and urban population densities in bigger cities like: Teheran, Shiraz, and Isfahan are approximately several times the average. It is not just aggregate activity that is agglomerated; individual industries are concentrated too. There are many examples. The auto industry is well-known for its spatial concentration, especially in the west of Tehran (between Tehran and Karaj) finance, business services, and the production of films and television programs are other notable examples of industrial clustering in Tehran. Agglomeration also takes place within cities in the form of densely developed downtowns and sub-centers. These patterns are not unique to Iran’s metropolitan cities. Capital and labors are highly agglomerated in every developed city in the country. There are some ways to look for evidence of localization and urbanization economies.
Some experts can identify the existence of an urban wage premium, with workers in cities of over a million residents (Tabriz, Karaj, Mashad, Shiraz, and Isfahan) earning roughly a third more in nominal wages than workers in cities of fewer than 100,000. Even after controlling for the selection of highly productive workers into cities, a significant premium remains. Various approaches have been adopted in modeling agglomeration economies. Perhaps the simplest is to assume that there is some sort of public good that can be shared more economically in a larger city or cluster. This force operates on both the production and consumption sides.
The important common element from all these explanations is that agglomeration is associated with situations where market outcomes are not guaranteed to be
Efficient. Productivity is enhanced by infrastructure, and utility is increasing in public goods. Agglomeration economies can also arise from thick market effects in search or matching.
The concept of agglomeration economies in Dubai (UAE) refers to savings or benefits derived from the clustering of activities external to the "firm" and are therefore part of "external economies.” However, as geographers, we may at times be more interested in the "clustering" than in the organizational boundaries of the firm. Thus, what is "external" would depend on the recognized boundaries. For example, the Major Hotels or High rise Buildings in the Palm islands of Dubai can be said to benefit from the agglomeration of its activities in this area. Thus, such benefits are external to the individual region (but, of course, internal to its own territory).
Agglomeration effects associated with the agglomeration of population and the resulting infrastructure facilities, labor pool and quality of life, for example: the cities of Tehran, Isfahan+ ("urbanization economies").
Agglomeration effects resulting from the clustering of industrial activities giving rise to an "industrial climate" (with positive and negative effects). (="Industrialization economies").
Finally, effects, which result from the agglomeration of specific activities that favor specialized facilities, labor pools, vocational training, political lobbies etc. (="localization economies").



Now that Dubai (UAE) has established itself as a modern and international city in the Persian Gulf Region, there is a major trend to promote its own regional assets, and its own unique cultural features. The new focus of the city is driven by strategies and projects that respect and bring the local identity into the planning and design projects. In this context, three approaches have emerged. The first approach calls for the renovation and reconstruction of the old urban fabric that was either destroyed or was in decay such as the Bastakiya district in Bur Dubai. The other approach promotes the importance of the unique local cultural heritage among the population and provides training and tools for the local government and city staff. The third calls for modern developments to be inspired from the local culture (i.e. the new Jumeirah Mall —a modern suq— and the new palm island—a modern real estate business project that is built on the reclaimed land from the sea with a palm shape as a plan design—).

Revenues in the Persian Gulf states(best example of agglomeration) were insufficient to keep pace with the growing cost of entitlements for a burgeoning population. In the early days of the oil boom (1970-1980), most of the oil-producing states created a social welfare network that was the most generous in the world. Free medical care, free education, low-cost housing, extremely inexpensive domestic telephone and transportation, and the world’s lowest prices for energy were among the benefits routinely provided to citizens of the region, often with no income tax.
At the same time, most of these states actively promoted population growth, creating a demographic explosion. In 1970, there were approximately 45 million people living on the shores of the Persian Gulf. By 1995, there were over 100 million people, and by the year 2010 there will be an estimated 162 million. Approximately two-thirds of the Gulf population is located in Iran called urbanization economies Region(Bandar Abbas, Bandar Lengeh, Bandar Bushehr), but the Arab in Persian Gulf states are steadily increasing their proportion of the total. Almost without exception, by the mid-1990’s these states were facing budgetary demands that exceeded their resources and were faces with the unpleasant prospect of reducing subsidies and cutting services that their citizens had come to expect as their birthright. The financial reserves that had been accumulated during the boom years of the 1970s were severely eroded by the costs of the war against Iraq in 1990-91.
The rapid increase in population(part of the side effect of negative urbanization economies), with no corresponding rise in oil revenues, pushed budgets into deficit and eroded per-capita earnings. Per-capita annual income in Saudi Arabia in 1996 was only $6,900, compared with some $19,000 in 1980 at the height of the oil boom. By the mid-1990s, the income of the average Saudi had declined to less than that of some developing countries, and below the World Bank’s rich-poor median line of $7,620.
Per –capita annual income in IRAN in 2006 was less than $3,600.
Iran shares many if the dilemmas of the other Persian Gulf states, particularly the reliance on oil as the source of most of its revenues. It is, however, the only country of the region to have a somewhat diversified industrial base. In addition to its exports of carpets and agricultural products, it manufactures steel, assembles automobiles, builds ships and small aircraft, and produces most of its own pharmaceutical, plastics and many other basic goods. Unlike the other Persian Gulf states, Iran derives nearly 20 percent of its state revenues from taxes, including an income tax.
Iran began a systematic effort to develop new markets in Central Asia, the Far East, South Asia, and East Africa, including the opening of a rail link from the ancient Silk Road to the Persian Gulf in the last decade.
The World Bank, in a report on the Persian gulf said the region had suffered from falling oil prices, a failure to train workers, a lack of economic liberalization and privatization, excess bureaucracy and the waste of resources in inefficient state-owned enterprises (especially in IRAN, Saudi Arabia , Bahrain, Oman). To reverse this, it noted, will take promoting non-oil exports, making the private sector more efficient, producing more skilled and flexible workers and reducing poverty by accelerating growth (Recent privatization in Iran is helping to reduce the poverty in long term “depend on right management and developing better and more effective comprehensive Master plan for the economy).
It is recommended that a set of fairly prosaic fiscal and public policy correctives: stimulation of an energetic private sector capable of generating jobs; privatization of many state-owned businesses(similar to what happened recently in Iran after passing the law Article 44 of the Iranian constitution which promoted the privatization in large scale and selling state owned factories to private sectors and promoting the foreign investors to invest and making the law more suitable for them in IRAN,) reevaluation of the extraordinarily generous entitlements that were adopted in the 1980’s; curbing population growth(Example Iran in the last 10 years); gradual reduction of subsidies on goods and services; the introduction of taxes or user fees; improved education and training of citizens to make them more competitive in the private-sector market(private universities and institutions in metropolitan Cities such as Tehran , Isfahan , Mashad , Tabris and other big cities and provinces);
Iraj Akbarieh spokesperson of the industries and mines ministery said In IRAN 80 percent of the mineral and industrial companies will be privatized by the end of current Iranian year (March 19, 2008) in line with enforcement of the Article 44 of the Constitution.
Accelerating the privatization In Iran speeding up In the second half of current Iranian year the permits of selling 51 percent, 48 percent, and 48 percent of the shares of Khozestan Steel Company, Khorassan Steel Company will be issued respectively. That will reduce the power of the state to control the economy and will help to bring in the right direction to decrease the inflation rate and brings the unemployment below 10% in the near future.




Sources:
Urban Agglomeration William C. Strange
Economic Geography Glossary
Local identity in a Global Context : The case of Dubai, UAE
The Coming Crisis In the Persian Gulf
The Persian Gulf of the Millennium: Essays in Politics, Economy, Security, and Religion. St. Martins Press; New York 1997.
Mehrnews agency on October 21 , 2007