Clusters and Comparative Advantage: Implications for Industrial Policy

No 4391, Research Department Publications from Inter-American Development Bank, Research Department

Abstract: Industrial agglomerations or `clusters` arise in the presence of industry-specific and local externalities, also called Marshallian externalities. The standard argument is that such externalities may justify a policy of infant-industry protection to allow and encourage clusters to emerge. This paper explores that argument and shows that different policy implications emerge under a more realistic modeling of clusters. In particular, rather than distorting prices to promote clusters in `advanced`sectors that may exhibit strong clustering possibilities, countries should focus instead on promoting clustering in current sectors that have demonstrated the strongest comparative advantage. Import substitution is not a proper way to achieve such a goal.

Date: 2005-12
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Related works:
Journal Article: Clusters and comparative advantage: Implications for industrial policy (2007)
Working Paper: Clusters and Comparative Advantage: Implications for Industrial Policy (2005)
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