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Clusters and comparative advantage: Implications for industrial policy

  • Rodriguez-Clare, Andres

Industrial agglomerations or `clusters` arise in the presence of industry-specific and local externalities, also called Marshallian externalities. The standard argument is that such externalities may justify a policy of infant-industry protection to allow and encourage clusters to emerge. This paper explores that argument and shows that different policy implications emerge under a more realistic modeling of clusters. In particular, rather than distorting prices to promote clusters in `advanced`sectors that may exhibit strong clustering possibilities, countries should focus instead on promoting clustering in current sectors that have demonstrated the strongest comparative advantage. Import substitution is not a proper way to achieve such a goal.

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Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 82 (2007)
Issue (Month): 1 (January)
Pages: 43-57

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Handle: RePEc:eee:deveco:v:82:y:2007:i:1:p:43-57
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