Which of the following is an advantage of localization of industry?

Step 1: Analyze the question The question asks for an advantage of localization of industry. Localization means that firms in the same industry concentrate in one particular area. Examples are the Aba leather and footwear cluster, the Nnewi auto-parts cluster, and the Ikeja industrial estate.

Step 2: Explain the concept When many firms in the same industry settle in one place, the area gains several benefits (external economies of scale):

• A pool of skilled labour
• Shared infrastructure such as roads, power and water
• Growth of subsidiary and ancillary firms that supply raw materials, components, packaging, repairs and transport services, or that use the by-products
• Easier marketing, with buyers coming to a known location
• Specialised training and research institutions

Localization also has disadvantages:

• Congestion and pressure on infrastructure
• Growth of slums
• Unemployment if the main industry declines
• Pollution

Step 3: Evaluate each option

• A. Development of subsidiary firms is an advantage. Supporting firms grow up around the main industry, which is a classic benefit of localization.
• B. Creation of a parallel market is not an advantage. A parallel market is a black market, which is unrelated to localization.
• C. Development of slums is a disadvantage, because overcrowding and poor housing result from concentration.
• D. Attraction of foreign capital is not a standard benefit of localization. It depends on government policy and investment climate, not on the clustering of firms.

Step 4: Answer The correct answer is A. Development of subsidiary firms.

Exam tip: For "advantages of localization", think "S-L-I-M": Subsidiary firms, Labour pool, Infrastructure sharing, Market access. If you see slums, congestion or pollution, those are the disadvantages.