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The authors model spatial clusters of similar firms. The model highlights how agglomerative forces lead to localized, individual connections among firms, while interaction costs generate a defined distance over which attraction forces operate. Overlapping firm interactions yield agglomeration clusters that are much larger than the underlying agglomerative forces themselves. Empirically, they demonstrate that the model's assumptions are present in the structure of technology and labor flows within Silicon Valley and its surrounding areas. The model further identifies how the lengths over which agglomerative forces operate influence the shapes and sizes of industrial clusters; they confirm these predictions using variations across both technology clusters and industry agglomeration.
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