Industrial clusters lead to higher job growth, more patents

Chuck Bednar for – Your Universe Online
Researchers from the Massachusetts Institute of Technology (MIT) have for the first time discovered empirical evidence supporting the long-held theory that having a cluster of firms within a given industry can help a region’s economy grow.
Writing in the December edition of Research Policy, MIT professor Scott Stern and colleagues from Temple University and Harvard Business School explained how they analyzed 41 industrial clusters involving 589 different subfields of industry in 177 regions in the US.
Each of those clusters was composed of multiple related industries that offered what the paper called “complementary activities that give rise to increasing returns.” For instance, the research found that a cluster of industries resulted in higher employment and patenting growth.
In addition, the study found evidence of the complementary relationship between employment and innovation performance in these regional clusters, and that new regional industries emerged in places where there is a strong initial cluster environment.
The findings suggest that a region can improve its overall economic performance by improving upon its existing industrial assets, rather than trying to radically transform itself by pursuing businesses that are established elsewhere. Stern said that he hoped that quantifying this effect in detail will encourage local leaders to make sound economic decisions.
“Very often, regions are given advice that they should become the next Silicon Valley, or be like some other region,” he explained. “They’re told that they’re in a global war for talent, or they should try to put out very expensive incentives to attract a single plant. What our research suggests is that regions succeed by investing in and extending their comparative advantage.”
As the study suggests, most US cities are unlikely to convince tech-related businesses away from Silicon Valley, financial firms to leave New York or media companies to abandon Hollywood. In the new paper, however, Stern, corresponding author Mercedes Delgado of Temple’s Fox School of Business and Harvard professor Michael Porter report that they can build on their strengths.
“Policymakers can use analytics to understand what their sources of relative advantage are,” Stern said. “And while they, of course, want to avoid picking winners and we want to let a lot of experimentation flourish, we can prioritize those activities that leverage the things about our regions that are unique, distinctive, and meaningful. That leads to a smarter type of economic development than simply chasing the next big thing.”
The paper used data from the US Cluster Mapping Project, a partnership between MIT, Harvard, Temple and the US Economic Development Administration in the Department of Commerce. An economic cluster, they say, has about 15 distinct types of industries within it, and multiple regions can host a given industry (Detroit and Cleveland with the auto industry, for example).
The research covered the years from 1990 to 2005, and found that a one-standard-deviation increase above the mean in industry specialization within a region resulted in an anticipated 1.3 percent annual increase in employment growth in that particular area. The study also found a 1.2 percent annual increase in the growth of patent in those regions.
“To me, jobs are a really important outcome, and we’ve tied that back to economic structure,” Stern said. “We see more innovation in strong clusters, and strong innovation clusters are also associated with stronger employment. So there’s a duality between the innovation and the jobs.”
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