Informal Industrial Agglomeration: Submitted To
Informal Industrial Agglomeration: Submitted To
Submitted to
Professor
University of Dhaka
Submitted by
Group 2, Section B
Name Roll
BBA 30, IBA
1
The informal economy consists of activities that have market value but are not formally registered.
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Identifying Key Drivers of Industrial Clustering
The location of informal industrial agglomerations is influenced by a complex range
of factors related to geography, resources, labour, history, and networks. Mukim, (2011)
attempted to understand what drives the process of spatial variations in industrial activity in
India, i.e. in identifying the factors that determine location decisions. For countries like India,
economic geography2 factors have an important effect on informal firms’ performance, and
thus their decision to locate in a particular area. But in another paper, for countries like China,
their policy of developing the east first has led to industrial agglomerations that are
concentrated in the eastern region (Zhang et al., 2022). In another paper, Wang et al. (2010)
explores the informal industrial cluster in the electronics industry in Shenzhen, China, using a
case study approach to investigate the drivers and consequences of the agglomeration of the
electronics industry in Shenzhen. The study finds that the agglomeration of the electronics
industry in Shenzhen is driven by a range of factors, including the high cost of compliance
with formal regulations, the need for flexibility and responsiveness in a rapidly changing
market, and the social and cultural norms of the industry. Again, Moulaert et al. (2012)
researched the informal industrial agglomeration of developed countries like the United
States of America in the city of Los Angeles where he found it has emerged as a result of a
combination of economic, social, and cultural factors like- low barriers to entry, flexible
production, cheap labour and dense networks of suppliers, subcontractors, and retailers.
Here, a clear distinction can be seen among the key drivers of the phenomena in low-income,
mid-income and high-income countries. Some of the most mentionable ones are:
Geographical Location
Informal industrial agglomerations are often located close to major urban centres or
transportation hubs, allowing for easy access to markets and customers. For example, the
garment industry in Los Angeles is located close to the downtown area and major
transportation routes, which helps to facilitate access to markets and customers. (Moulaert et
al., 2012)
Access to Resources
Informal industrial agglomerations often require access to specific resources or raw
materials. For example, informal metalworking clusters in India are often located close to
sources of scrap metal and other raw materials, which are essential inputs for their production
processes. (Schmitz, 1999). Gereffi (1999) did not focus on a specific location for informal
2
Economic Geography is the study of how people earn their living, how livelihood systems vary by
area and how economic activities are spatially interrelated and linked.
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industrial agglomerations, but instead examined the apparel commodity chain on a global
scale. The paper argues that the location of these industries is influenced by factors such as
access to raw materials.
Labour availability
The availability of low-cost labour is often a key factor in the location of informal
industrial agglomerations. For example, Hassan et al. (2019) conducted a survey of informal
manufacturing enterprises in Dhaka, Bangladesh, and used spatial analysis3 techniques to
identify clusters of such activities in the city with a focus on the role of lower labour costs in
forming agglomeration. The authors found that informal manufacturing is a key livelihood
strategy for poor urban residents, and that low labour costs are a critical factor in the location
and competitiveness of such enterprises.
3
Spatial Analysis is a set of methods used to interact with a GIS to answer questions, support
decisions, and reveal patterns depending on location.
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Negative Aspects
One of the negative effects of informal industrial agglomeration is the environmental
externalities that can arise from increased pollution and congestion. In their study of
Konabari–Kashimpur, Bangladesh, Hossain & Huggins (2021) found that rapid
industrialization in the Greater Dhaka Region has led to significant environmental
degradation, including air and water pollution, deforestation, and soil erosion. They also
found that agglomeration can lead to low wages and poor working conditions, as firms
compete on the basis of cost rather than quality.
4
Entrepreneurship in Informal Industrial Agglomeration refers to the process of starting and running a
business in a location where informal economic activities cluster together.
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Understanding the factors that contribute to successful entrepreneurship in IIAs can inform
policies and programs aimed at supporting small and medium-sized enterprises, promoting
economic development, and reducing poverty in urban areas.
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the use of Geographic Information Systems (GIS) and spatial statistical analysis techniques to
analyse the spatial patterns of manufacturing industries in Keraniganj.
The international analysis of industrial agglomeration has helped our investigation of the
industrial agglomeration occurring in Bangladesh. Coagglomeration of informal industries
was found to be prevalent in urban peripheral areas of Bangladesh, particularly in Dhaka, for
example, Jinjira Bazar, Keraniganj. Zinzira, a part of Dhaka near the Buriganga river on the
outskirts of the city, is thought to be the best example of informal industrial agglomeration in
Bangladesh. Over time, iron, brass, manufacturing, automobile, electric equipment, light
engineering, and other industries have naturally gathered in this area because its location
makes it easy to do so. Cost reduction, collaboration among co-existing industries, and
infrastructural and resource benefits are all important reasons for clustering in this location
(Karim, 2023). The majority of workers in these industries are unskilled or semi-skilled, and
they work for long hours for minimal wages. (Hassan et al., 2020).
Talukder and Jahan (2017) conducted a study to identify main barriers to competitiveness and
growth encountered by micro, small, and medium-sized light engineering firms in Zinzira
today. To do this, the researchers conducted qualitative interviews with the business owners,
watched how they ran their businesses, and held validation workshops.The study found that
cultural factors are the main thing holding them back from being competitive and growing,
not a lack of resources as most people think.
Despite their informal status, the SMEs5 in Jinjira Bazar contribute significantly to the
economy of Bangladesh. Although there has been some progress made in studying the
informal industrial agglomeration and fringe areas of Bangladesh, it is not enough to reach a
conclusion. With more research and field work on the causes and effects of informal
industrial agglomeration, entrepreneurial scopes and labour market pooling6, we can figure
out how it applies to Bangladesh. The industrial areas located in urban regions of Bangladesh
differ from the ones studied in previous reports, with differences in terms of location, place,
human-environment interactions, and movement. Given the distinctiveness of areas such as
Jinjira and their significant role in the economy of Bangladesh, they present an opportunity
for research and study.
5
SME refers to the unregistered Small and Medium Enterprises in that geographical location.
6
Labour market pooling refers to a larger pool of workers in an area with a specific set of
specialisation or characteristics that makes it easier for firms to find workers with the characteristics
they need.
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