Disadvantages of Localization:

Despite the above advantages obtained from localization of industry, serious problems may arise which may include:

(i) Localization of industry may lead to population congestion in and around the area where the industry has been located. This will in turn lead to the creation of slumps around the industry and the consequent vices such as prostitution, crimes, etc.

(ii) The firms will compete with each other for factors of production and if the demand for such factors exceeds the supply, shortages will be created which will in turn lead to rising prices of these factors. This may be passed on to consumers in the form of higher prices.

(iii) If there is depression then mass unemployment will occur in the area.

This can create serious economic problems unless there are alternative industries to absorb those who have lost jobs.

(iv) Industrial concentration can be target of enemies during war and this disrupts production and lower output as well as heavy casualty.