Marshall's three sources
Marshall (1890) cited shared suppliers, pooled labour and ideas 'in the air'. Duranton and Puga (2004) formalized sharing, matching and learning, and Ellison and colleagues (2010) found support for all three.
New economic geography
Krugman (1991) showed increasing returns and transport costs can produce self-reinforcing core-periphery patterns, linking to endogenous growth and human capital.
Evidence
Glaeser and colleagues (1992) found diversity aids city growth, Rosenthal and Strange (2004) reviewed elasticities, and Greenstone and colleagues (2010) found spillovers from large plant openings.
FAQ
- What are agglomeration economies in simple terms?
- Being close to other firms and workers makes everyone more productive.
- Are there downsides?
- Yes; congestion, housing costs and pollution limit how large clusters grow.
Sources reviewed: 2026-10-26
References
- Marshall, A. (1890). Principles of economics. Macmillan. Marshall's three sources of agglomeration.
- Krugman, P. (1991). Increasing returns and economic geography. Journal of Political Economy, 99(3), 483–499. Founding paper of new economic geography.
- Glaeser, E. L., Kallal, H. D., Scheinkman, J. A., & Shleifer, A. (1992). Growth in cities. Journal of Political Economy, 100(6), 1126–1152. Specialization versus diversity in city growth.
- Duranton, G., & Puga, D. (2004). Micro-foundations of urban agglomeration economies. In J. V. Henderson & J.-F. Thisse (Eds.), Handbook of regional and urban economics (Vol. 4, pp. 2063–2117). Elsevier. Sharing, matching and learning mechanisms.
- Rosenthal, S. S., & Strange, W. C. (2004). Evidence on the nature and sources of agglomeration economies. In J. V. Henderson & J.-F. Thisse (Eds.), Handbook of regional and urban economics (Vol. 4, pp. 2119–2171). Elsevier. A review of the empirical evidence.
- Greenstone, M., Hornbeck, R., & Moretti, E. (2010). Identifying agglomeration spillovers: Evidence from winners and losers of large plant openings. Journal of Political Economy, 118(3), 536–598. Causal evidence from plant openings.
- Ellison, G., Glaeser, E. L., & Kerr, W. R. (2010). What causes industry agglomeration? Evidence from coagglomeration patterns. American Economic Review, 100(3), 1195–1213. Tests Marshall's mechanisms jointly.