Externalities, Learning and Governance: New Perspectives on Local Economic Development

In spite of growing mobility of production and production factors, economic development is increasingly localized in economic agglomerations. This article reviews three partially overlapping perspectives on local economic development, which derive from three factors intensifying the localized nature of economic development: externalities, learning and governance. Externalities play a central role in the new geographical economics of Krugman and in new economic geography of clusters and industrial districts. The dynamics of local economic development are increasingly associated with evolutionary economic thinking in general and with collective learning in particular. Inter‐firm and extra‐firm organization has experienced considerable innovation in the last few decades. New institutional devices are based on the notions of commodity chain, cluster and milieu. These innovations introduce new issues of economic governance both at the level of industry and of territory.