The Cluster Policy Paradox: Externalities vs. Comparative Advantages
AbstractThe literature on clustering has highlighted several advantages of industrial agglomerations. Persons and firms benefit from the production and innovation activities of neighbouring companies in the same and related industries. Considering such benefits, Michael Porter states that clustering is an important way for firms fulfilling their competitive advantages and for rising regional and national competitiveness. This justification has increasingly driven regional policy towards the cluster promotion. However, the cluster-support policy is in the middle of a controversy, since the traditional optimal-policy perspective recommends providing a subsidy to firms of clusters generating externalities, while Porter’s prescriptions recommend not choosing among clusters. So, we state that cluster policy is involved in a paradox: policy makers use the competitiveness rhetoric inspired in the competitive advantages of Porter but, in practice, they go on using the industrial targeting that was also criticized b Porter. This paper deals with this paradox presenting a model, which proves that despite the extensive amount of externalities is the traditional comparative advantage approach that must guide policy. This finding is congruent with the Porter’s policy prescriptions and has clear implications in regional policy.
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Bibliographic InfoPaper provided by Universidade do Porto, Faculdade de Economia do Porto in its series FEP Working Papers with number 431.
Length: 25 pages
Date of creation: Oct 2011
Date of revision:
clusters; dynamic and static externalities; knowledge spillovers; regional economic development; spatial agglomeration;
Find related papers by JEL classification:
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
- O3 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights
- R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics
- R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Production Analysis, and Firm Location
- R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
- R15 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Econometric and Input-Output Models; Other Methods
- C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-10-15 (All new papers)
- NEP-CSE-2011-10-15 (Economics of Strategic Management)
- NEP-GEO-2011-10-15 (Economic Geography)
- NEP-URE-2011-10-15 (Urban & Real Estate Economics)
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