ABSTRACT
A growing body of theoretical and empirical literature examines inter-firm agreements and the role they play in the development of firms' strategies (Hagerdoorn and Schakenraad 1990; Chesnais 1988). According to this literature, geographical proximity plays a dual role in network formation. On the one hand, it contributes to the formation of networks through the establishment of personal contacts and the built-up of social capital in local business districts. On the other hand, geographical proximity plays a dissuasive role in the formation of networks by erecting barriers to entry and inhibiting innovation. This may happen when networks are densely located in some closely related business communities. Firms located in distant geographical areas are, apparently, more prone to establish network relations.
