The production of leather shoes in Ethiopia dates from the late 1930s when Armenian merchants founded two shoe factories in Addis Ababa. These factories nurtured a number of shoemakers, who opened their own factories in Addis Ababa and trained their workers. Today, the neighborhood of Mercato, a huge marketplace in the city, swarms with shoemakers, wholesale shops dealing in leather, soles, and shoe accessories, and shoe retail stores.
Industrial clusters like this are ubiquitous in developing as well as developed countries because of agglomeration economies originally pointed out by Marshall (1920). If transacting parties are located near each other, transport costs are saved, transaction costs due to imperfect information and imperfect contract enforcement are lowered, and good products and superior production practices diffuse quickly. Thus, industrial clusters enhance the division and specialization of labor among enterprises, the development of the market for skilled workers, and the dissemination of technical and managerial knowledge. Such agglomeration economies attract new enterprises to a cluster, making the cluster larger and reinforcing the agglomeration economies.
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