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In urban and regional economics’ literature, according to the concepts of new economic geography model (NEG) and endogenous growth model, spatial agglomeration of economic activities and economic growth are interrelated processes. In the endogenous growth models, how to create new economic activities through innovation is checked. Moreover, the NEG model aims to investigate how to establish these new economic activities, and cause of their concentration. Therefore, innovation, location and growth are interconnected processes within the NEG model. This article examines theoretically and experimentally the effects of economies of industrial agglomeration on economic growth in Iran’s provinces. In theoretical section, a NEG model has been presented. It shows that the agglomeration of industrial activity affects the economic growth. In the experimental section, a model has been estimated by applying Generalized Method of Moments (GMM) using provincial data during 2000-2009. The results indicate the positive and significant impact of industrial agglomeration on economic growth in provincial level in Iran. Also, the amount of industrial agglomeration has been calculated by Maurel-Sedillot index within the 2-digit ISIC codes, which shows that the other transport equipment industry (code -35) has the largest agglomeration, and printing and publishing industry (Code -22) has the smallest agglomeration.

Keywords: Economies of localization, New Economic Geography Model, economic growth, Generalized Method of Moments

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