An article in the current edition of the Economist describes Alfred Marshall’s original observation of geographic clusters of activities. They describe four main logics for clustering:
First, some may depend on natural resources, such as a coalfield or a harbour. Second, a concentration of firms creates a pool of specialised labour that benefits both workers and employers: the former are likely to find jobs and the latter are likely to find staff. Third, subsidiary trades spring up to supply specialised inputs. Fourth, ideas spill over from one firm to the next, as Marshall observed.
However, there are also costs to being in a cluster such as higher rent or transportation costs associated with distances to customers or suppliers. The burst of communications and computing power should make it easier since natural resources are less important and workers can live farther away from their offices.
It hasn’t worked this way. Pools of human capital continue to drive clustering as people prefer to work near where they live. Very small distances can make a big difference. The article goes on to describe clusters within clusters in the Bay area for specialized knowledge.