Clusters and Regional Development

Industrial clusters have existed since the early days of industrialization. Clusters exist because of the fact (or perception) that competing firms in the same industry derive some benefit from locating in proximity to each other. These benefits are external to the firm and accrue to similar firms in proximity. Examples include the cotton mills of Lancashire, automobile manufacturing in Detroit, and information technology firms in Silicon Valley. At the firm level, the presence of firms in the same industry, which are located in proximity (in the same region), are expected to increase internal productivity. At the industry level, it is possible to see quantifiable localized benefits of clustering which accrue to all firms in a given industry or in a set of interrelated industries. The sources of this productivity increase in regions where an industry is more spatially concentrated: knowledge spillovers, dense buyer–supplier networks, access to a specialized labor pool, and opportunities for efficient subcontracting. At the metropolitan area level, productivity increases from access to specialized financial and professional services, availability of a large labor pool with multiple specializations, inter-industry information transfers, and the availability of less costly general infrastructure. At the interregional scale, these gains are expected to lead to industry concentration in metropolitan and other leading urban regions. To obtain a complete picture of clustering, one must also consider its absence. If manufacturing and service clusters are associated with regional economic growth, the absence of productive clusters suggests the absence of growth and lagging regions.