THE ANALYSIS OF LOCATION, CO-LOCATION ANDURBANISATION ECONOMIES

This paper provides an overview and critical assessment of co-location and clusteringin space. Basic location conditions include accessibility to customers, input suppliersincluding knowledge providers, and regional endowments. A distinction is madebetween slow and fast location adjustments. In a basic model, it is shown howdistance sensitivity and scale economies generate self-reinforcing locationexternalities. Variations of the same model are employed to illuminate howurbanisation economies can stimulate co-location and clustering. One model variant isdesigned to examine how innovation activities also can be influenced by urbanisationeconomies. The paper concludes that a set of basic principals form the basis forlocalisation and urbanisation economies. However, there remains a challenging gapbetween model predictions and empirical observations.QC 2012020