Industrial Diversification and City Size: The Case of Yugoslavia

Abstract

The theoretical explanation for the industrial diversification-city size relationship is studied. As an explanation on the basis of variation in factor prices is not adequate, attention is paid to the theory of agglomeration economies, which offers a framework for a consistent theoretical explanation of the industrial diversification-city size and the industrial share-city size relationships. The results of some empirical research into the agglomeration economies-city size relationship are reviewed. Two econometric models are formulated of the industrial diversification-city size and the industrial share-city size relationships in Yugoslavia. The estimation of these models (based on 1981 data) gives evidence to support the hypothesis that there is a statistically significant relationship between city size and industrial diversification/share.