Cluster-based strategies for Resilience and Inclusivity, Mercedes Delgado MIT at the TCI 2018
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Cluster-based strategies for Resilience and Inclusivity, Mercedes Delgado MIT at the TCI 2018
- 1. Cluster-Based Strategies for Resilience and Inclusivity A case from Quebec Mercedes Delgado, MIT
- 2. Cluster-Based Strategies for Resilience and Inclusivity Mercedes Delgado, MIT TCI 2018, Institute for Competitiveness & Prosperity October 16-18, 2018
- 3. Outline: Cluster-Based Strategies for Resilience and Inclusivity • Mapping clusters to identify comparative advantages • Clusters and resilience to economic shocks • Clusters and inclusivity in job creation
- 4. Mapping Clusters to Identify Comparative Advantages
- 5. Industry Clusters are Everywhere A cluster is a geographical concentration of related industries and firms connected through various types of linkages and spillovers and supporting institutions Distribution & E-Commerce in Hangzhou Medical Devices in MinneapolisAutomotive in Indianapolis ICT in Christchurch NZ
- 6. What Makes a Good Cluster? • A set of related industries versus specialization in one narrow industry • Industries and firms related by various types of links • Input-Output • Labor occupations and skills • Knowledge/technology • Many clustered firms that compete and cooperate • Startup and Incumbent • Small and Large • Domestic and Foreign • Support Institutions: Finance, Universities, Chamber of Commerce, and Innovation Spaces (co-working, industrial parks, accelerators, labs)
- 7. What Types of Industries are Geographically Concentrated? Traded versus Local 0 2 4 6 8 10 12 14 16 18 20 1 179 Hospitals (Local Industry) Surgical and Medical Instrument (Traded Industry) Specialization of Industry in a Region (Location Quotient based on Employment) Regions (179 Economic Areas in the U.S.)
- 8. How Important is the Traded Economy? • In the traded economy, wages, patenting, and STEM (Science, Technology, Engineering and Math) jobs are much higher than in the local economy • What happens within the traded economy?: Define traded clusters Traded vs. Local Share of the U.S. Economy EMPLOYMENT INCOME PATENTS 36% 64% 51% 49% 91% 10%90% 9% STEM
- 9. Defining Clusters of Related Industries: Cluster Analysis • To define clusters, we use cluster analysis: numerical methods to classify similar objects (industries) into groups (Everitt et al., 2011) • Creates groups (clusters) in such a way that objects (industries) in the same group are more similar among themselves than to those in other groups Biopharmaceuticals Cluster Medicinal and Botanical Pharmaceutical Preparation Biological Product (except Diagnostic) In-Vitro Diagnostic Substance Surgical & Medical Instrument Surgical Supplies Optical Instrument & Lens Ophthalmic Goods Dental Equipment & Supplies Medical Devices Cluster Source: Delgado/Porter/Stern (2016)
- 10. Benchmark Cluster: Medical Devices Source: Delgado/Porter/Stern (2016) NAICS 5 Industries Industry Name Within Cluster Relatednessic Rank (1 = best) Score 333314 Optical Instrument and Lens 1 1.97 339115 Ophthalmic Goods 1 2.48 339112 Surgical and Medical Instrument 1 2.18 339113 Surgical Appliance and Supplies 1 2.34 339114 Dental Equipment and Supplies 1 1.61 Description: Establishments in this cluster primarily manufacture surgical, medical, dental, optical, ophthalmic, and veterinary instruments and supplies. Within Cluster Relatedness: industries ranked best in this group than in any other group
- 11. Mapping Clusters: Medical Devices Interactive Map here Source: Delgado, Porter, Stern (2016)
- 12. Portfolio of 51 Traded Clusters and their Connections Note: Delgado/Porter/Stern (2016). Clusters with solid lines are highly related (dark line=stronger relatedness). Dotted lines are the next closest clusters.
- 13. Lighting Medical Devices IT & Analytical Instruments Down- stream Chemicals Biopharma Leather Printing Services Financial Services Insurance Education & Knowledge Creation Marketing Services Performing Arts Hospitality & Tourism Aerospace Textiles Plastics Distribution & eComm. Fishing & Fishing Products Production Recreation & Electric Goods Jewelry & Precious Metals Environ- mental Services Plastics Construction Downstream Metals Comm- unications Equip. & Services Video Production Business Services Music & Sound Recording Delgado, Porter, Stern (2016). US Cluster Mapping Project. Boston-Worcester-Manchester, MA-NH EA: Strong clusters (+75 percentile specialization; colored) and their connected clusters. Regions Have Comparative Advantages Manifested in their Clusters Cluster composition of Boston that is the core of the iEcosystem
- 14. Where to Locate Amazon HQ2? Mercedes Delgado
- 15. Amazon’s HQ in Seattle Exploits Agglomerations Cities Specialized in Information Technology Clusters, 2015 Seattle, WA • Metro Areas with Dual Specialization in Production & Innovation have 55% of IT patents • Seattle (and neighboring cities) is highly specialized in IT • About 2,300 patents and 70,000 jobs (5% of IT patents and 6% of IT jobs) • Amazon had +1,000 patents granted in 2015, +80% concentrated in the West • 45% in Seattle WA, 23% in Bremerton WA, 14% in San Jose, CA Delgado (2018)
- 16. HQ2 Candidate Cities are Specialized IT, Distribution & e-Commerce, or Communications Equip. & Services 16
- 17. HQ2 Candidate Cities with IT Cluster Specialization, 2015 Specialized in all 3 clusters: IT, Distribution and e-Commerce, and Communication Equip. and Services. Employment specialization in IT and Communications Equip. & Services clusters. Employment specialization in IT and Distribution & e-Commerce clusters. Average IT wages (e.g., 201K in Seattle) Delgado (2018) and US Cluster Mapping Project. Los Angeles CA $105 New York, NY $115 Philly, PA $130 Boston MA $113 Raleigh, NC $106 Seattle, WA $201K Austin TX $109 Dallas TX $115
- 19. Clusters Matters for Economic Performance Growth in Startup Activity Source: Delgado/Porter/Stern (2010, 2014). Delgado/Porter (2017). Delgado/Zeuli (2016). CLUSTER ENVIRONMENT Within a Cluster Related Clusters Neighboring Clusters Industries that are part of a strong cluster environment register higher growth in jobs, startup activity (employment and count of startups), innovation, and resilience to economic shocks. Growth in Innovation Resilience to Economic Shocks Inclusivity in Jobs
- 20. Do Clusters Matter for the Resilience of their Regional Industries? • Cluster theory suggests agglomeration arises across related economic units (Marshall, 1920; Porter, 1990, 1998) • Empirical approach: If clusters matter for mitigating shocks, then a regional industry located in a ‘strong’ cluster will grow relatively faster during the recession period (as compared to industries in weak clusters) Surgical & Medical Instrument Surgical Supplies Optical Instrument & Lens Dental Equip. & Supplies Ophthalmic Goods Medical Devices Cluster Strong Surgical & Medical Instrument Medical Devices Cluster Weak
- 21. Same Industry in two Regions: Who was Resilient to the Great Recession? Medical Devices Cluster Madison-Baraboo, WI Surgical Supplies Dental Equipment & Supplies Ophthalmic Goods Medical Devices Cluster Salt Lake City, UT Surgical & Medical Instrument Surgical & Medical Instrument Annual Employment Growth of Surgical & Medical Instrument Industry Medical Devices Cluster Recovery 2007-2009 (Great Recession) 2009-2011 Ratio of Employment2011 to Employment2006 Salt Lake City, UT 5% 6% 1.11 Madison-Baraboo, WI -31% -6% 0.93
- 22. • Using all industries, clusters and regions, we find a positive relationship between the annual employment growth of industries and the strength of their clusters during the full business cycle, and specially during the crisis (2007-2008) Estimated Effect of Cluster Specialization on Region-Industry Annual Employment Growth, 2003-2011 0.000 0.020 0.040 0.060 0.080 0.100 0.120 2004 2005 2006 2007 2008 2009 2010 2011 Fig 1: Clusters of Related Industries -0.020 0.000 0.020 0.040 0.060 0.080 0.100 0.120 2004 2005 2006 2007 2008 2009 2010 2011 No Effect! Fig 2: Random Clusters of Unrelated Industries Source: Delgado/Porter, 2017. Related vs. Unrelated Industries Mitigate Economic Crises
- 23. Cluster Mechanism: Inter-firm, inter-industry links help mitigate shocks and the associated uncertainty
- 24. Supply Chain vs. B2C Industries Delgado and Mills (2017). MIT Sloan Research Paper No. 5241-16 • Supply Chain (SC) industries sell their output primarily to other businesses: e.g., semiconductors, engineering services, cloud computing • B2C industries sell primarily to personal consumers e.g., food, apparel • SC industries are more likely to develop inter-firm, inter-industry links • They produce inputs and have more (downstream) industry links • SC industries are more vulnerable to crisis (face more uncertainty) No. Industries 779 Employment 42M Growth 2007-2009 -3.1% No. Industries 64% No. Industries 36% Employment 62% Employment 38% Growth 2007-2009 -4.3% Growth 2007-2009 -1.2% All Traded Industries, 2012 Supply Chain Business-to-Consumer
- 25. Supply Chain Industries are More Resilient In Clusters • New finding: SC industries experienced greater cluster effects than B2C during the whole business cycle and, especially, during the recession • This suggests that inter-firm, inter-industry links matter especially for resilience Estimated Effect of Cluster Specialization on EA-Industry Annual Employment Growth, 2003-11 SC Industry: Coef. of Ln Cluster Spec B2C Industry: Coef. of Ln Cluster Spec
- 26. How to Improve Resilience to Economic Crises? • Avoid diversity of unrelated industries • Avoid industry specialization: Large industries in weak clusters are very vulnerable • Instead, improve the breadth of existing and emerging clusters • Why do clusters matter during an economic crisis? • Pooling resources (skills, knowledge) among related and co-located industries • Collaboration between proximate suppliers and buyers • Presence of many firms that compete in related but distinct markets • These benefits are particularly important when industries face uncertainty
- 27. Inner City MSA Inclusive Prosperity: Connecting Distressed Places to Nearby Clusters
- 28. The Distribution of Economic Success is Uneven Inner Cities and Small Cities are in Distressed • Inner cities are economically distressed parts of a city (unemployment, poverty) • 30 million people live in inner cities in the U.S. in 2011 (10% of population) • Do clusters matter for job growth in Inner Cities and Small Cities? • Cons: lower skills, smaller size, and worse social conditions • Pros: high density of population and employment, and proximity to the city Inner City Central City MSA Indianapolis-Carmel-Anderson MSA Delgado and Zeuli (2016), Economic Development Quarterly.
- 29. Mapping Inner City and Surrounding Region Indianapolis, Indiana: Inner City (IC), Central City (CC) and MSA • Inner City Central City Metro Area (MSA) • The inner city belongs to the Indianapolis Central City that belongs to the Indianapolis-Carmel-Anderson MSA • We measure the presence of a cluster in the 3 mutually exclusive geographies: IC (green area), the surrounding CC (grey area) and the rest of the MSA (orange area) Inner City Central City MSA Indianapolis, Indiana Indianapolis-Carmel- Anderson MSA
- 30. Connected: Strong in Boston Inner City & City Weak in Boston Inner City, Strong in City Down- stream Chemicals Biopharma Leather Printing Services Performing Arts Hospitality & Tourism Aerospace Plastics Distribution & eComm. Fishing & Fishing Products Production Environ- mental Services Plastics Construction Downstream Metals Comm- unications Equip. & Services Video Production Business Services Music & Sound Recording Delgado and Zeuli (2016). ICIC and US Cluster Mapping Project. Boston Inner City and its City (Central City and the MSA). Strong (Specialized). Boston Inner City Connectivity to Strong Clusters in the City Education & Knowledge Creation Marketing Services Insurance Services Financial Services IT & Analytical Instruments Medical Devices Recreation & Electric Goods Lighting Jewelry & Precious Metals Inner City Central City
- 31. Inclusive Prosperity by Connecting Micro Areas to Regional Clusters Strong Clusters in Indianapolis, Indiana EA and in its Micro Areas Mapping the cluster composition of a region and its small cities to inform policy: • The Indianapolis Economic Area contains 12 Micropolitan Areas • A connected Micro Area specializes in clusters that are strong in the nearby EA • Regional clusters vary in their connectivity to Micro Areas: Automotive vs. Biopharma • Micro Areas vary in their connectivity to clusters in the surrounding Indianapolis EA There are many opportunities to develop firm and people networks across nearby cities and their clusters in ways that creates inclusive prosperity Biopharma Medical Devices Auto Production Tech Metalworking Tech Plastics Upstream Metal Mfg Environmental Svc Distribution & eComm. Printing Svc Coal Mining Micro Areas in Indianapolis EA Bedford, IN Connected Connected Connected Connected Connersville, IN Connected Connected Connected Connected Crawfordsville, IN Connected Connected Connected Connected Frankfort, IN Connected Connected Connected Greensburg, IN Connected Logansport, IN Connected Connected Connected New Castle, IN Connected North Vernon, IN Connected Connected Connected Peru, IN Connected Connected Richmond, IN Connected Connected Connected Seymour, IN Connected Connected Connected Connected Vincennes, IN Connected
- 32. IC-Industry growth is Higher in Connected Clusters Y=IC-Industry Employment Growth, 2003-11 (N=35,641) Ln IC-Industry Employment2003 -0.259** (0.009) Strong/Weak Cluster Specialization in Inner City (IC), Central City (CC) and MSA (r1, r2,r3): IC-Strong & CC-Strong &MSA-Strong 0.374** (0.030) IC-Strong & CC-Strong &MSA-Weak 0.366** (0.040) IC-Strong & CC-Weak & MSA-Strong 0.254** (0.028) IC-Strong & CC-Weak & MSA-Weak 0.173** (0.021) IC-Weak & CC-Strong & MSA-Strong 0.190** (0.049) IC-Weak & CC-Strong & MSA-Weak 0.116* (0.065) IC-Weak & CC-Weak & MSA-Strong 0.086** (0.029) The Omitted dummy is IC-Weak & CC-Weak & MSA-Weak Industry FEs (755 industries) Yes IC FEs (327 ICs) Yes R-Squared 0.234
- 33. Connecting to Compete Policies to Integrate Distressed Places into their Regions What not to do: Generic policies or ‘best practices’ • Policies to attract any type of firms may not be effective. • Choosing generic clusters (e.g., ‘high-tech’ clusters or ‘Artificial Intelligence’ clusters) and What to do: Tailored policies to improve the ability to connect places to their nearby clusters • Step 1: Map the cluster composition of the region and its cities (industries, firms, people) • Step 2: Develop initiatives to connect the IC to the nearby clusters: • STEM skills needed by the regional clusters • Supply chain services: e.g., logistical, design and engineering services (Delgado/Mills, 2018) • Capital & social infrastructure that increases the circulation of ideas, people, goods and services
- 35. Selected References • Delgado, M., 2018, “Firms in Context: Internal and External Drivers of Success,” in GL. Clark, M. Feldman, M. Gertler, and D. Wójcik, (eds.), New Oxford Handbook of Economic Geography. • Delgado, M. and K. Mills, 2018, The Supply Chain Economy and The Future of Good Jobs in America, HBR.org. • Delgado, M., 2018, “The Co-location of Innovation and Production in Regional Clusters.” DRUID Working Paper. • Delgado, M., M.E. Porter, and S. Stern, 2010, “Clusters and Entrepreneurship,” Journal of Economic Geography 10(4), 495–518. • Delgado, M., M.E. Porter, and S. Stern, 2014, “Clusters, Convergence, and Economic Performance,” Research Policy 43(10), 1785–99. • Delgado, M., M.E. Porter, and S. Stern, 2016, “Defining Clusters of Related Industries,” Journal of Economic Geography 16(1), 1–38. • Delgado, M. and M.E. Porter, 2017, “Clusters and the Great Recession,” Working Paper. • Delgado, M. and K. Zeuli, 2016, “Clusters and Regional Performance: Implications for Inner Cities,” Economic Development Quarterly 30 (2), 117–136. • Porter, M.E., 1997, “New Strategies for Inner-City Economic Development,” Economic Development Quarterly 11, 11-27. • Porter, M.E., 1998, On Competition, Harvard Business School Press, Boston, MA. • Porter, M.E., 2003, “The Economic Performance of Regions,” Regional Studies 37, 549–78.