Industrial Clusters: Equilibrium, Welfare and Policy

25 Pages Posted: 1 Nov 2001

See all articles by Victor D. Norman

Victor D. Norman

Norwegian School of Economics (NHH); Norwegian School of Economics (NHH) - Department of Economics; Centre for Economic Policy Research (CEPR)

Anthony J. Venables

University of Oxford; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2001

Abstract

This Paper studies the size and number of industrial clusters that will arise in a multi-country world in which, because of increasing returns to scale, one sector has a propensity to cluster. It compares the equilibrium with the world welfare maximum, showing that the equilibrium will generally have clusters that are too small, while there are possibly too many countries with a cluster. Allowing national governments to subsidize will move the equilibrium to the world welfare maximum, so there is no 'race to the bottom'. If subsidy rates were capped then there would be a proliferation of too many and too small clusters.

Keywords: Clusters, trade, increasing returns, industrial policy

JEL Classification: F10, F12

Suggested Citation

Norman, Victor D. and Venables, Anthony J., Industrial Clusters: Equilibrium, Welfare and Policy (October 2001). CEPR Discussion Paper No. 3004. Available at SSRN: https://ssrn.com/abstract=288582

Victor D. Norman (Contact Author)

Norwegian School of Economics (NHH) ( email )

Helleveien 30
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Norwegian School of Economics (NHH) - Department of Economics

Helleveien 30
N-5035 Bergen
Norway

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Anthony J. Venables

University of Oxford ( email )

Mansfield Road
Oxford, Oxfordshire OX1 4AU
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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