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Corresponding Author:
Miroslav N. Jovanović, University of Geneva, Global Studies Institute, Dušan Sidjanski Centre of Excellence in European Studies, Switzerland

Spatial Location of Firms and Industries: An Overview of Theory and Practice V2.0

May 9, 2025
JEL classification: F1; F23; L52; R10
Keywords: Location; Geography; Cluster; History; Accident; Chance; Multiple Equilibria; Lock-in; Path Dependence; Links; Firms; Multinationals; Economies of Scale; Global Value Chains; Sanctions; Trade War

Abstract

Where economic activity will locate and stay in the future is one of the most important and challenging questions in economics. Even though advances in technology have reduced the cost of transport and communication, which has curtailed the ‘distance penalty’ for business operations, local proximity of firms that produce similar, competing and/or related products still matters, especially at times with proliferating economic sanctions and trade wars. This reinforces the absolute, rather than relative, advantages of many small areas. The location of firms depends not only on costs of production and marketing, but also on economies of scale, activity-specific backward and forward linkages (indivisible production), accumulated knowledge, path dependence, innovation, the existence of sophisticated customers (markets) and on unpredictable chance events and historical accidents. ‘Global’ competitiveness often depends on highly concentrated ‘local’ knowledge; capabilities and common tacit codes of behaviour which can be found in spatially concentrated firms (clusters). Widespread global value chains are ageing and are being redressed because of uncertainties related to supply routes, ‘near-shoring’ and economic sanctions. Although there are certain principles and lessons learned for the location of firms and economic policy, the issue is still complex, evolving and subject to further theoretical and empirical analysis.


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Institute for International Economics
of the Genoa Chamber of Commerce


Istituto di Economia Internazionale
Camera di Commercio di Genova
Via Garibaldi, 4 (III piano) - 16124 Genova (Italy)
www.ge.camcom.gov.it