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Clusters and Comparative Advantage: Implications for Industrial Policy

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Listed author(s):
  • 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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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
Handle: RePEc:idb:wpaper:4391
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  1. Ronald Findlay, 1995. "Factor Proportions, Trade, and Growth," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061759.
  2. Paul Krugman & Anthony J. Venables, 1995. "Globalization and the Inequality of Nations," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 857-880.
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  11. 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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  13. Rodrik, Dani, 1996. "Coordination failures and government policy: A model with applications to East Asia and Eastern Europe," Journal of International Economics, Elsevier, vol. 40(1-2), pages 1-22, February.
  14. Klenow, Peter J. & Rodriguez-Clare, Andres, 2005. "Externalities and Growth," Handbook of Economic Growth,in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 11, pages 817-861 Elsevier.
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