Agglomeration Externalities and Economic Geography

Agglomeration externalities refer to the benefits that industries and communities experience when they cluster together geographically. These economies thrive in areas with high concentrations of talent and specialized resources, creating a network effect that enhances productivity and innovation. For instance, Silicon Valley serves as a prime example, where tech companies benefit from a shared labor pool and support services, fostering rapid growth and collaboration. Historically, areas like Troy, New York, known for its collar industry, and Pennsylvania's embroidery cluster demonstrate how industrial agglomeration can shape local economies significantly.