Agglomeration economy – Definition & Meaning

Agglomeration economy is a concept that refers to the benefits that arise when firms and people locate close to one another. It is a phenomenon that has been observed in many urban areas around the world and has been found to be beneficial for economic growth and development. In this article, we will explore the meaning and definition of agglomeration economy, its origin, associations, synonyms, and antonyms.


Agglomeration economy is a term used to describe the advantages that result from firms and people being located close to one another. This proximity leads to lower transportation costs, increased knowledge spillovers, and a larger pool of skilled labor. According to the World Bank, agglomeration economies arise from three main sources: localization economies, urbanization economies, and network economies.
Localization economies occur when firms in the same industry locate near one another to take advantage of shared resources, such as specialized labor or suppliers. Urbanization economies arise from the benefits of living in a city, such as access to cultural amenities or a larger labor market. Network economies arise from the benefits of being connected to other firms and industries in the same area.


The concept of agglomeration economy has been around for centuries, but it was not until the 20th century that economists began to study it in depth. The term “agglomeration economy” was first used by Alfred Marshall in his 1890 book Principles of Economics. Marshall argued that the concentration of firms in a particular location could lead to lower costs and increased productivity.
In the 1950s and 1960s, economists such as Jane Jacobs and Charles Tiebout began to study the benefits of urbanization and the role of cities in economic growth. Since then, agglomeration economy has become a central concept in urban economics and regional development.

Meaning in different dictionaries

The meaning of agglomeration economy can vary slightly depending on the dictionary. According to Merriam-Webster, agglomeration economy is “the benefits that firms derive from being located near one another.” The Oxford English Dictionary defines it as “the advantages that result from the concentration of economic activity in a particular location.”


Agglomeration economy is closely associated with urbanization, as it is often observed in large cities and metropolitan areas. It is also associated with industrial clusters, which are groups of firms in the same industry located near one another.
In addition, agglomeration economy is often discussed in the context of economic development and regional planning. Policymakers may use agglomeration economy as a justification for investing in infrastructure or offering incentives to attract firms to a particular location.


There are several synonyms for agglomeration economy, including clustering, concentration, and localization. These terms all refer to the benefits that arise from firms and people being located close to one another.


There are no direct antonyms for agglomeration economy, as it is a concept that describes a positive phenomenon. However, some economists have argued that there are drawbacks to agglomeration, such as congestion and high costs of living.

The same root words

The term “agglomeration” comes from the Latin word “agglomerare,” which means “to gather into a ball.” The root word “agglomeration” is also used in other contexts, such as in geology to describe the process of sediment particles sticking together.

Example Sentences

  • “The agglomeration economy in Silicon Valley has led to a concentration of technology firms and a highly skilled workforce.”
  • “The city’s investment in public transportation has helped to strengthen the agglomeration economy by making it easier for firms and workers to connect.”
  • “The benefits of agglomeration economy are not evenly distributed, and some neighborhoods may be left behind.”
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