2 - Economic restructuring under globalization

Summary

Economic change in a city is linked to its economic structure. Activities develop at different rates and some have exceptional dynamics that are the driving force behind urban growth. Demographic dynamics, productive structure, population relocation and economic activities shape the organization, density, transformation and modification of built space. Moreover, in a city, the material supports that house the population and both traditional and legendary, and recent and emerging activities, overlap and coexist (Hirsch 1977).

There are five factors that help explain the way economic growth occurs in urban areas and the difference between them: (1) transport costs; (2) internal economies of scale; (3) agglomeration economies; (4) market size; and (5) innovation and technological progress. These factors play a part, but the role of manufacturing and services in the economy, the size and nature of the informal sector, the rate of investment and the primacy of the ZMCM in the national urban system are also critical to Mexico City.

Transport costs are related to the geographic position of the city for the acquisition of inputs and distribution of products, as well as the existing infrastructure for the mobility of goods and people (Arbia et al. 2016). Internal economies of scale involve the reduction of average production costs as the volume of goods or services produced or offered increases. These are generated within the firm by a more efficient use of production factors, especially the labour factor (Koster & Kapitsinis 2016). At the same time, agglomeration economies are a syllogism of internal economies of scale and involve the reduction of the average production cost that occurs in any productive firm when a city increases the size of its population. They are generated outside the firm and are achieved by harnessing and using infrastructure and facilities in the city, and because of the spatial concentration of the population and human activities (Giuliano et al. 2019; van Oort 2016).

The size of markets for the goods and services is another element for understanding local economic growth and its rate of change. Market size includes demand within and outside the city. According to the export-base theory, the larger the city, the lower the economic dependence on the volume of goods and services demanded outside it (Thulin 2016; Tiebout 1962).