*2.4. The Dilemma of Moderate Economic Diversification, Agglomeration Economies of Gambling Industry and Diminishing Returns in Macao*

Because of its high concentration of casinos, Macao's economy is enjoying the benefits of agglomeration economies suggested by scholars in studies of other contexts. They include the concentration of customers, skilled labor and knowledge spill-over [25,45] and increase the strength of related agglomeration in the region [22]. The benefit of agglomeration economies suggests that over-adjustment of the gambling industry may harm the development of moderate economic diversification in Macao.

Apart from a concern about over-adjustment, the diminishing returns of the gambling industry in Macao may also be a concern. Delgado et al. [22] stated that "narrow regional specialization in an industry is likely to result in diminishing returns and the presence of unrelated economic activity is unlikely to significantly enhance opportunities for growth but may increase congestion." Applied to the context of Macao, the gambling industry may eventually lead to diminishing returns. Delgado et al.'s [22] findings imply that the development of the gambling industry in Macao may eventually reach a point of diminishing returns to scale, suggesting that the determination of an appropriate scale for gambling industry development is pertinent. The determination of an appropriate scale should strike a balance between the seemingly contradictory themes of continuous development without over-adjustment in the gambling industry and diminishing returns of that industry.
