A dynamic analysis of the agglomeration and performance relationship

Abstract

This study takes a dynamic approach to the study of the economies of agglomeration in the tourist districts of the Spanish Mediterranean coast. Results suggest that company growth has a U-shaped relationship with the degree of agglomeration, which means that first levels of agglomeration profits decrease until they reach a certain point of agglomeration, from which business growth begins to increase. This process means that hotels in tourist districts with a high degree of agglomeration are not only more profitable at a given moment of time, but these hotels even increase their competitiveness with time. This increased competitiveness owes to the fact that the profitability of these hotels grows faster. The analysis also determines that costs are the cause of this behavior because costs grow more quickly when the degree of agglomeration is low, but after some time, the externalities resulting from agglomeration imply a progressive reduction of business costs.