ABSTRACT
Geographical factors and their implications have been placed at the heart of the economic analysis only quite recently. Mainstream economics has tended to analyze geographical factors in terms of the trade-off between economies of scale and transport costs (Hoover 1948). Consequently, orthodox economic theory downplays the importance of geographical factors by focusing on the determinants of prices in relation to the characteristics of market structures. However, some economists, management theorists and economic geographers have pointed out the importance of place in influencing the costs and benefits associated with location (Amin and Malmberg 1992; Amin and Thrift 1994; Dicken 1998; Dunning 1998; Krugman 1991, 1995; Ottaviano and Puga 1998; Saxenian 1994). It has been widely recognized that economic activities are based in particular areas due to attractive characteristics in these locations. Therefore place matters, in the organization of economic activities. Furthermore, it has been argued that geographical proximity facilitates gains in efficiency and flexibility that individual producers, operating in isolation can rarely attain (Porter 1990). Geographical factors play, therefore, a crucial role as a source of competitiveness (Gertler 1995; Porter 1994; Porter and Solvell 1998; Ricci 1999; Saxenian 1991; Scott 1995). Geographical proximity can lead to the development of clusters and industrial districts that can lead to competitive advantage, through gains from external economies of scale, which are not available to firms operating in isolation. There is a large literature on Italian industrial districts that focuses on geographical factors as an important influence on the development of effective organizational structures for delivering high productivity and strong export performance by small and medium size enterprises (Brusco 1982; Goodman, Bamford, Saynor 1990; Pyke, Becattini, Sengenberger 1990; Russo 1985). There is also a literature on industrial districts in developing countries that focuses on benefits of geographical concentration as a means to achieve improved performance (Schmitz and Musyck 1994; Nadvi and Schmitz 1994; Cadene and Holmstrom 1998).
