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Location analysis could lead to reduction of costs of establishing and running economic activities. Sometimes, choosing an incorrect location could dramatically increase the costs. A suitable location for economic activities is one of the most important factors in having a good urban space for citizens, firms and municipalities. In cities, most of firms are service providers. Due to the existence of external economies of scale and reduction of costs, especially transportation costs, firms are usually located near together. Clustering similar firms can lead to decreasing costs, facilitating shopping for buyers and attracting potential buyers. This study tries to investigate the distribution of economic activities in Isfahan, as well as determining specialized and diversified zones of the city. It also analyses effective factors on locating different activities.  Thus, specialization and diversification of all 14 zones of Isfahan are measured and then a regression model is specified and estimated by GMM approach. Results show that number of banks has positive effect on location of different activities. Meanwhile, specialization and diversification, which are the result of the economies of scale in localized and urbanized agglomerations, are critical factors on choosing locations in the city.

Keywords: City, Specialization, Diversification, Localized agglomeration, Urbanized agglomeration, Distribution of economic activities JEL Classification: R12

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