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Spatial Location of Firms and Industries: An Overview of Theory




Where economic activity will locate in the future is one of the most important and challenging questions in economics. Even though advances in technology have reduced the cost of transport and communication which has curtailed the ‘distance penalty’ for business operations, local proximity of firms that produce similar, competing and/or related products still matters. This reinforces the absolute, rather than relative, advantages of many small areas. The location of firms depends not only on costs of production and marketing, but also on economies of scale, activity-specific backward and forward linkages (indivisible production), accumulated knowledge, path dependence, innovation, the existence of sophisticated customers (markets) and on unpredictable chance events and historical accidents. ‘Global’ competitiveness often depends on highly concentrated ‘local’ knowledge; capabilities and common tacit codes of behaviour which can be found in spatially concentrated firms (clusters). Although there are certain principles for the location of firms, the issue is still complex and subject to further theoretical and empirical analysis.

Suggested Citation

  • Jovanović , Miroslav N., 2003. "Spatial Location of Firms and Industries: An Overview of Theory," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 56(1), pages 23-82.
  • Handle: RePEc:ris:ecoint:0168

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    Cited by:

    1. Nalin Kumar Ramaul & Pinki Ramaul, 2016. "Determinants of Industrial Location Choice in India: A Polychoric Principal Component Analysis Approach," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 14(1), pages 29-56, June.

    More about this item


    Cluster; history; accident; chance; multiple equilibria; lock-in; path dependence; links; economies of scale;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • L52 - Industrial Organization - - Regulation and Industrial Policy - - - Industrial Policy; Sectoral Planning Methods
    • R10 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General


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