Local vs. Global Location of Firms and Industries

Where economic activity will locate in the future is one of the most important questions in economics. Even though advances in technology have reduced the cost of transport, communication and information gathering and processing, hence curtailing the distance penalty, local proximity (clusters) of firms that produce similar, competing and/or related products together with supporting institutions still matter. Economies of scale, activity-specific backward and forward linkages (indivisible production), accumulated knowledge and skills, innovation, existence of sophisticated customers and a fall in transportation costs play relevant roles in the protection of clusters and absolute locational advantages of certain locations. Global competitiveness often depends on highly concentrated local knowledge, capabilities and common tacit codes of behaviour which can be found in a geographical concentration (cluster) of firms