Economies of Agglomeration - Types of Economies

Types of Economies

There are two types of economies that are considered large-scale and external economies of scale; localization and urbanization economies. Localization economies arise from many firms in the same industry located close to each other. There are three sources of localization economies: the first is the benefit of labor pooling which is the accessibility that firms have to a variety of skilled laborers, which in turn provides employment opportunity for the laborers. The second benefit is the development of industries due to the increasing returns to scale in intermediate inputs for a product and the third source is the relative ease of communication and exchange of supplies, laborers and innovative ideas due to the proximity among firms.

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