Agglomeration modelling captures the benefits to firms and workers of being in close proximity. Firms gain productivity benefits from being near one another and within large labour markets. In transport projects, agglomeration benefits arise from improved travel times that effectively bring districts closer.
Quantifying agglomeration effects is a widely accepted part of cost benefit analyses in economic impact assessments. Agglomeration methodologies are well-established in some regions (for example, the UK), but elsewhere no accepted approach is available (such as Australia). Assessment of agglomeration impacts has clear value for clients: agglomeration is a key part of business investment narratives and its effects can be a substantial source of economic benefit.
Use of agglomeration modelling in cost-benefit appraisals for transport projects is rapidly becoming the norm.
The quantification of agglomeration impacts incorporates benchmarked elasticities of demand to measure the impact that a change in one variable has on another.
This project developed a tool for quantifying agglomeration impacts where no established approach is available. Specifically, the project developed a robust framework and tool for quantifying the impacts of agglomeration in Australia, with focus on transport business.
The adopted approach has the potential to be applied in other countries.
Quantification of agglomeration has clear potential value for clients. Capturing agglomeration impact forms a key part of an investment narrative.
The scale of the impact varies from project to project: a recent business case used a benchmark figure of 30% uplift in benefits attributable to wider economic benefits, of which agglomeration was a key driver.
Quantifying agglomerations helps boost the benefit-cost ratio (BCR) of projects and supports a well-founded analysis and justification of investment.