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Third Italy's industrial districts have been emerging as effective strategies for regional economic development since the 80's. In Comparison with the mass production system, The districts' production system characterizes a cooperative network of a number of small and medium enterprises specialized in a specific sector or process. This work will analyze the course and cause of growth of the Prato district as an exemplary industrial district, In order to elucidate the new principle of building industrial space named development of industrial districts.This work points out three factors which has induced the growth of the Prato districts. First, the Prato districts have a production system based on vertical dis-integration and specialization among enterprise. This factor make Prato's production system coupled with specialized enterprise in coping with various demand of consumer. Secondly, the district's culture is based on trust and cooperation. This factor contributes to social capital by which differentiated division of labour is coordinated quickly without serious conflict. The last factor is the industrial policy of local government which has been in practice since the mid-80's, focusing on technological innovation and its diffusion.