The Elusive Concept of Localization Economies: Towards a Knowledge-Based Theory of Spatial Clustering

A number of possible advantages of industry agglomeration—or spatial clustering—have been identified in the research literature, notably those related to shared costs for infrastructure, the build-up of a skilled labour force, transaction efficiency, and knowledge spillovers leading to firm learning and innovation. We identify two shortcomings of existing research on the clustering phenomenon. First, the abundance of theoretical concepts and explanations stands in sharp contrast with the general lack of work aimed at validating these mechanisms empirically and the contradictory evidence found in recent empirical work in the field. Second, there is still a lack of a unified theoretical framework for analyzing…