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Clusters and Comparative Advantage: Implications for Industrial Policy

  • Andrés Rodríguez-Clare

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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Paper provided by Inter-American Development Bank, Research Department in its series Research Department Publications with number 4391.

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Date of creation: Dec 2005
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Handle: RePEc:idb:wpaper:4391
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  10. Rodriguez-Clare, Andres, 1996. "The division of labor and economic development," Journal of Development Economics, Elsevier, vol. 49(1), pages 3-32, April.
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  15. Altenburg, Tilman & Meyer-Stamer, JORG, 1999. "How to Promote Clusters: Policy Experiences from Latin America," World Development, Elsevier, vol. 27(9), pages 1693-1713, September.
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