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surrounding urban areas, especially geographical economics and the availability of economic data, economists are able to focus on cities as drivers of economic growth and development more so than in earlier studies. (Luus et al, 2005:2)

 

The benefits towards firms of being located in a city are due to localisation and urbanisation economies. Localisation economies refer to the benefits a firm receives from operating amongst other firms in the same industries. Urbanisation economies refer to the advantages of the overall scale and diversity that originates in cities due to the localisation economies. (Luus et al, 2005:2)

 

It goes without saying that South Africa needs much higher economic growth rates to meet the needs of the more than 30% of the population that is unemployed and has to be more widely spread, beyond the six major cities. (Luus et al, 2005:3) also argues that the localities that do grow do so because of natural resources, technology, lifestyles that attract entrepreneurs, and effective local governance.

 

The localisation and urbanisation economies (mentioned above) tie in with the term spatial complementarities, therefore “the significance of geography is not one of determinism” (Luus et al, 2005:3). Nearby and intense economic interactions reap benefits for growth and opportunities which in turn establishes new centres of activity.

 

When referring to cities as drivers of growth and development it builds on the notion of spatial complementarities and external economies. External economies of scale occur at industry level. In this case, an increase in the output of the industry as a whole leads to a decrease in average costs. On the other hand internal economies of scale occur at firm level where increased production results in a cost advantage over smaller firms. (Luus et al, 2005:13)

 

When external economies apply, an increase in industry-wide output causes a change in the relationship between inputs and output for each individual firm. According to (Luus et al, 2005:13) there are two examples of this:

 

Knowledge Sharing, Learning and Innovation:

 

As industry output rises, the stock of knowledge rises and information spills over to firms. This is a positive external benefit that is not paid for, reducing cost and causing an increase in the level of output at the firm level. (Luus et al, 2005:14) it is also motivated that these benefits accrue due to knowledge sharing, learning and imitation in a particular area. Therefore, cities play a very important role in economic growth as they provide the versatile information that spills over and that also contributes to innovation. “The lumpiness of economic activity in South Africa may be good for economic development!”

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