What Have We Learned about Clusters?

Volodymyr Vakhitov, KSE

XL EERC Research WorkshopKyiv

May 21-22, 2016

What is a cluster?

• Buzz-word

• Some interrelation of geography, manufacturing activity, technology, human capital, innovations

• Hypothetically, very profitable thing

• May or may not need government support (industrial parks, tax holidays, business development efforts)

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Types of clusters

• High-Tech (“Silicon Valley”, “NC Research Triangle”)

• Historic know-how-based (London, New York, Frankfurt in finance, Milano in fashion, French-Swiss border in watches)

• Endowment-based (Champagne, Burgundy, Lombardy, Roquefort, coal mining)

• Low-cost manufacturing (eastern China some time ago, Cordoba, Guadalajara)

• Knowledge service (Bangalore, Shanghai, Recife – BR)

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What is a cluster?

Strictly speaking, nobody knows

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How do clusters emerge?

• Path-dependent process:

– Combination of planning and chance

– Watches in Switzerland; carpets in Dalton, GE; Silicon Valley

• Firms produce an shape economic space (by increasing returns)

– Nursery cities

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Why do some locations become clusters, and others do not?

Strictly speaking, nobody knows

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Productivity effect of clusters: Theory

• Endowment (Marshall)

– specialized labor, resources, “spirit in the air”, ability to withstand business cycles, common markets

• Core-periphery (Krugman/Fujita, Thisse, Ottaviano,…)

– Transport costs, economies of scale, preferences

• Transaction costs (Williamson)

– Imperfect information, incomplete contracts, networks

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Productivity effect of clusters: Empirics

• Proximity reduces costs, external scale economies (agglomeration)

• Diversity seems to be important

• Density rather than pure size of cities

• Intra-city relationships

• Role of competition (pro-competition policies)

• Vantage point matters (industry/region size)

• Business cycle stage matters (more effects in booms)

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How do clusters enhance efficiency

Some evidence is present

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What needs to be explored?

• Dynamic efficiency

• Role of linkages

• Role of vertical (dis)integration

• Role of corporate structure and management models

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How do clusters induce creativity?

• “Social fabric”, “industrial atmosphere”, “tacit knowledge”

• Cooperative learning behavior– Other firms, universities and research centers, investment

banks and business angels, government

– High degree of uncertainty and risk: need for trust!

• Dynamic effects of competition: I am watching you!– Observation leads to imitation with a little change (Jacobs)

• Informal contacts, social interactions, cafeteria effect

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What clustering mechanisms work?

• Recruitment of qualified labor

• Labor mobility

• Students involvement (interns, trainees, theses)

• Venture capital, angel investors

• Competition for knowledge

• Vertical and horizontal cooperation between firms

• Social networks (cafeteria effects)

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Can we create clusters?

• Culture, not buildings

• Social networks, not hierarchies

• Competition and small businesses

• Education (long term unsure investment)

• Trust (long term culture)

• Uncertainty

• Local and regional scale

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What is the most sound policy?

Build more cafeteria!

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