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Clusters and Comparative Advantage: Implications for Industrial Policy

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  • Andrés Rodríguez-Clare

Abstract

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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  • Andrés Rodríguez-Clare, 2005. "Clusters and Comparative Advantage: Implications for Industrial Policy," Research Department Publications 4391, Inter-American Development Bank, Research Department.
    • Handle: RePEc:idb:wpaper:4391
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