agglomeration economies
uh-glom-er-AY-shun ih-KON-uh-meez
əˌɡlɒməˈreɪʃən ɪˈkɒnəmiːzListen
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the cost savings and productivity gains that arise when firms and workers cluster in the same location, enabling them to share infrastructure, labour markets, and knowledge that would be more costly or unavailable if they were dispersed; first formalised by Alfred Marshall in 1890 as industrial districts and later elaborated through new economic geography by Paul Krugman, agglomeration economies explain why economic activity concentrates in cities rather than distributing evenly across space; they operate through three channels — labour market pooling (workers and firms match more efficiently in thick labour markets), input sharing (specialised suppliers cluster near customers), and knowledge spillovers (proximity enables face-to-face interaction and the informal transmission of ideas)
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