Firm-level Evidence on Direct and Indirect Effects of Cluster Policy

We estimate the direct and indirect causal effects of Germany’s Leading-Edge Cluster Competition on firm size, inventive activity, and joint patenting. With €600 million allocated to 15 clusters, this program is one of the largest cluster policy programs in Europe. Using a staggered event-study design, we estimate the direct effect of the cluster policy on firms within the funded clusters. Additionally, we differentiate between funded and non-funded cluster members to assess the effects of the financial and the systemic components of the policy. Furthermore, we estimate the indirect spillover effect of this program on firms in close proximity to the funded clusters that are not associated with them. Our results show that the cluster policy has a direct overall positive effect on firm size and inventive activity, but a negative effect on collaboration in inventive activity. Differentiating between funded and nonfunded cluster members reveals that the latter benefit strongly from the systemic component of the cluster policy, increasing their inventive activity while having no significant effect on collaboration. In contrast, we do not observe any indirect effects on geographically proximate non-cluster firms. Our results provide causal evidence of the direct benefits of cluster policy at the firm level but call into question the anticipated indirect effects of cluster policy on neighboring non-cluster firms.