Cluster-Based Economic Strategy, Facilitation Policy and the Market Process

Abstract

The geographical concentration of related manufacturing and service firms is as old as economic development, but it has drawn renewed attention in the last two decades in the wake of the spectacular growth of a number of regional economies ranging from SiliconValley (South San Francisco Bay) to Italian rural manufacturing districts. While numerous policy prescriptions for regional growth that built on this phenomenon have been devised, none has enjoyed more popularity among policy makers than the "cluster" based economic development strategy put forward by Harvard Business School's Michael Porter. In Porter's views, clusters are made up of firms that are linked in some ways and that are geographically proximate. Upon closer examination, however, this concept turns out to be so fuzzy that it is now commonly used in a variety of ways by a wide array of academics, consultants and policy makers. It is further argued that the regional specialization strategy commonly associated with clusters makes regions more likely to experience economic downturns, prevents the spontaneous creation of inter-industry linkages and hampers the creation of new ideas and businesses.

Keywords: Michael Porter, cluster, industrial policy, industrial districts, regional development

JEL Classification: L52, O21, R58