Theories of agglomeration

Theories of agglomeration explain why businesses and people tend to cluster together geographically. They suggest that proximity offers benefits like shared resources, specialized labor, and knowledge spillovers, which reduce costs and improve efficiency. For example, companies in the same industry may cluster to access a skilled workforce or to share suppliers. These benefits create a self-reinforcing cycle, attracting more businesses and workers to the area. Essentially, agglomeration occurs because being close together makes economic activities more productive and innovative, leading to concentrated business districts and urban centers.