Cluster Theory and Industry Policy: An Overview

Abstract

The goal of this paper is to discuss the potential of cluster theory to inform industry policy. The essay surveys recent literature published in Australia and in other OECD countries and draws out some of the key issues relevant to policy decisions. The discussion is organised in five sections. The first three sections lay the intellectual foundations by outlining the nature of the theory, identifying some of the strengths and weaknesses of the cluster approach, and highlighting the main contributions of the theory. Section four analyses the policy dimension of cluster theory, which is the main theme of the discussion, and in section five the focus turns to some of the practical issues that might affect policy development and implementation.

Keywords: Economic geography, Industry cluster, Australia's industry policy, Regional development

JEL Classification: L60, L70, L80, L90, F14