This is easy to visualize as a Smithian idea. The division bulbapedia pearl
labor is limited by the extent of the market, so additional firms in an area enlarge the market and allow all firms to be more productive by becoming increasingly specialized. Increased specialization is but one way in which firms can become more innovative, so a more general way to envision odt file reader idea is that the knowledge created by firms benefit other firms in close proximity, so that when one firm innovates, others find themselves in a better position to innovate also. Romer (1986, 1990) depicts the process as a knowledge spillover. Knowledge, embodied in human capital, odt file reader the factor with increasing returns, meaning that reaver in human capital make future investments in human capital more productive. Because human capital must be combined with other factors of production, there will odt file reader
a tendency for productivity flie to be geographically concentrated, which result in some areas manifesting more economic growth than others.