ABSTRACT
Traditional economic theory is rather clear on how economies specialize when they become more integrated. Trade theory suggests that economies specialize according to their comparative advantages due to technology (Ricardo) or factor endowments (Hecksher-Ohlin). However, these basic theories do not provide an explanation for the concentration of activities nor the increasing intra-industry trade, at the expense of inter-industry trade, that takes place between very similar economies, such as those of the European Union Member States. As an alternative to traditional theory, Marshall (1890) and Perroux (1950) introduced the logic of agglomeration. They consider that concentration of activity in one place increases the incentive for other firms to locate there, so that they benefit from the external economies (mainly technological externalities) associated with agglomeration.
