Clusters provide economic and social benefits to member businesses. Firms in clusters experience higher value added growth, profitability growth, and wages compared to non-cluster firms. Clusters also increase innovation performance, integration into supply chains, and average wages. Cluster participation boosts the probability of innovation and research collaboration. Strong clusters drive regional employment growth and new industry emergence through connections between related industries.

1. Economic & social impacts of clusters
Richard Walker
30 May 2014

2. Economic & social impacts of
clusters
Richard Walker
The TCI Network

3. Definition:
• A business cluster is a system of inter-related
companies, institutions and networks with common
understandings, a desire for continual growth and a
level of trust which enhances the flow of knowledge.
[After AEEMA]
• A business cluster is geographic concentration of
interconnected businesses, suppliers, and associated
institutions in a particular field. Clusters are considered
to increase the productivity with which companies can
compete, nationally and globally. In urban studies, the
term agglomeration is used. [After Porter]

4. Typical benefits of joining a Cluster
14% higher value added growth,
7% higher profitability growth and
2% higher wages per employee (a proxy for
productivity) to the advantage of firms in
clusters vs. those not in clusters”
SeeTable 2, Page 30 in Sölvell, Ö & Williams, M

5. Further benefits
• Muro [2013] in a study of 10 pilot cluster programs
undertaken by the SBA (USA), 50% of cluster
participants reported that cluster participation
increased their integration into their industry
supply chain.
• Ketels [July 2013] found that average wages are
positively and statistically significantly affected by
the presence of Clusters.

6. Innovation performance in Clusters
• Madeline Smith UK The following figure provides a snapshot of
innovation performance in clusters. It measures the
performance of innovative businesses involved in clusters
against a range of innovation indicators and draws comparisons
with innovative businesses that are not involved in clusters.
• The evidence suggests that there is a direct link between
innovation and working together through clusters/networks, as
those that are involved in cluster activity are generating higher
levels of successful innovation than those that don’t across a
whole range of indicators.
Following graph: European Commission (2006d) Innobarometer on cluster’s role in facilitating
innovation in Europe

7. Innovation Performance in Clusters
78
63
53
44
41
29 29
74
56
33
53
20
14
12
0
10
20
30
40
50
60
70
80
90
Introduce new or
signifiacntly
improved
products or
services
Introduce new or
signifiacntly
improved
production
technology
Conduct market
research for
introducing new
prodcuts or
services
Carry out
research in your
own laboratories
Contract out
research to other
firms, universities
or research
instiututes
Register one or
more internatioanl
trademarks
Apply for one or
more patents
%ofTotal
Involvedinacluster
Not involvedinacluster

8. Job creation
• Muro & Fiktri [2011] found that some 95 percent of all job
gains in a year in an average state come from the expansion
of existing businesses or the birth of new establishments
• Properly designed, cluster strategies are a low-cost way to
stimulate innovation, new-firm start-ups, and job creation
by helping to link and align the many factors that influence
firm and regional growth.
• Additionally, thinking in terms of clusters gives States a way
to articulate a positive vision of economic prosperity, engage
broad groups of stakeholders in driving recovery, boost the
export intensity of the economy, and bring focus and
discipline to myriad state investments and policies.

9. Manufacturing cluster helps members
boost capability
• Gustafson, MD Australis Engineering
“by joining with other local manufacturers in
the cluster increased his firm’s capability to
bid for larger projects”
Southern Strength Cluster Sydney
Increases opportunities as suppliers
Boost their business education
Assists members to share their experiences

10. Cluster driven regional growth
• Delgardo, Porter & Stern March 2011 found that Industries
participating in a strong cluster register higher employment
growth as well as higher growth of wages, number of
establishments, and patenting.
Industry and cluster level growth also increases with the
strength of related clusters in the region and with the
strength of similar clusters in adjacent regions.
Importantly, they found evidence that new regional
industries emerge where there is a strong cluster
environment.
• Their analysis also suggests that the presence of strong
clusters in a region enhances growth opportunities in other
industries and clusters.

11. Innovate & Collaborate in R&D
• The Danish Agency for Science & Innovation in a 7
year longitudinal study [2002-2008] of 1225
companies
Clusters increase the companies’ probability to
innovate by more than 4.5 times,
Participation increases the probability of R&D
Collaboration by 4 times
• Both effects showing from the first year of
participation in the cluster

12. References
• Solvell, Orjan & Williams, M Building the Cluster Commons -
An Evaluation of 12 Cluster Organizations in Sweden 2005 –
2012 Ivory Tower Apr 2013
• Muro, Mark Economic Cluster Policy Begins to Work
Brookings Institute Jul 9 2013
http://www.brookings.edu/blogs/the-
avenue/posts/2013/07/09-economic-cluster-policy-muro
• Muro, Mark and Kenan Fikri Job Creation on a budget: How
Regional Industry Clusters Can Add Jobs, Bolster
Entrepreneurship, and Spark Innovation
http://www.brookings.edu/research/papers/2011/01/19-
clusters-muro

13. References 2
• Delgado, Mercedes Michael E. Porter, Scott Stern Clusters, Convergence,
and Economic Performance Mar 2011
http://www.nber.org/papers/w18250
• Danish Agency for Science The impacts of cluster policy in Denmark - An
impact study on behaviour and economical effects of Innovation Network
Denmark 2011
http://fivu.dk/en/publications/2011/the-impact-of-cluster-policy-in-
denmark
• Smith, Madeline Head Strategy Instit of Design, Innovation Glasgow
Personal Communication
• EU Commission 2006 Innobarometer – on clusters role in innovation in
Europe

14. References 3
• Delgardo, Porter & Stern Clusters, Convergence and
Economic Performance 2011 HBS
• Balinski, Brent From strength to strength:
manufacturing cluster helps members boost
capacity Manufacturers’ Monthly Feb 2014