Towards an Explanation of Regional Specialization and Industry Agglomeration

The main argument advanced in this paper is that proximity matters. Product innovations, new forms of organization or new skills are arrived at in interactive processes within industrial systems. Such systems are embedded in a broader cultural and institutional context. Everything else being equal, interactive collaboration will be less costly and more smooth, the shorter the distance between the participants. The benefits of proximity can be translated into a force of spatial agglomeration in relation to firms engaged in interactive learning. Thus, agglomerations of related economic activity are not just reminiscents of previously cost efficient spatial configurations, but are currently being recreated as a result of an increasing demand for rapid knowledge transfer between firms. In this finding, we argue, lies the foundation for explaining the observed durability in otherwise incomprehensible patterns of specialization and competitiveness between countries and regions.