ABSTRACT
Many analysts have discussed agglomeration economies and the role they play in firm location. Polenske (2003) reviewed pertinent literature and tested the hypothesis that two types of economies affect regional economic growth and firm locations: agglomeration economies/diseconomies, and dispersion economies/diseconomies. Agglomeration economies/diseconomies are cost advantages and disadvantages that accrue to firms when the spatial concentration of economic activity changes transportation, labor and related costs. At each level of output, the average cost of production decreases (economies) or increases (diseconomies), but not necessarily uniformly. Some analysts consider scale economies part of these agglomeration economies, but we find it useful to treat only external economies as part of this concept. Externalities create agglomeration economies/ diseconomies. Knowledge spillovers, input sharing, and labor pooling create benefits from agglomeration (Marshall, 1920).
