ABSTRACT
This chapter explores the knowledge-intense industries in their first stages of development; seem to be concentrated in certain clusters of megacities. Social capital is here defined as social, non-formalized networks that are filled by the networks nodes/actors with norms, preferences and other social attributes and characteristics. Social space, expressed in ethnicity, religion, class is in many cases an original result of physical space. The ethnic groups have been processes where distance has played a crucial role. The kinds of phenomena that in the economic literature are called externalities are the fundamental reason for a firm's choice of location and other investment in social capital. The concept of externalities dates back to Marshall and has since then been considered as one of the most elusive and hard-formalized in the economic literature. Piero Sraffa considered externalities as the only source of increasing returns under perfect competition and claimed that although externalities are external to the firm they are internal to the industry.
