Advantages gained from an urban location (see J. Jacobs1996). These include proximity to a market, labour supply, good communications, and financial and commercial services such as auditing, stockbroking, advertising, investment, industrial cleaning, and maintenance. Desmet and Fafchamps (2005) J. Econ. Geog. 5, 3 distinguish between localization economies, which derive from being located close to other firms in the same industry, and urbanization economies, associated with closeness to overall economic activity. Larger cities have a greater comparative advantage than small, and the relationship between city size and urbanization economies is non-linear. Demand-side explanations for this argue that the bigger the city, the more likely a match between specific demands and suppliers (an explanation with echoes of threshold population), while supply-side explanations cite the provision of traded, and non-traded, inputs which increase innovation and variety, and lower costs.
Subjects: Earth Sciences and Geography.