Cluster Performance

Clusters, Convergence, and Economic Performance Mercedes Delgado Michael E. Porter Scott Stern

March 11, 2011

Abstract
This paper evaluates the role of regional cluster composition in the economic performance of industries, clusters and regions. On the one hand, diminishing returns to specialization in a location can result in a convergence effect: the growth rate of an industry within aregion may be declining in the level of activity of that industry. At the same time, positive spillovers across complementary economic activities provide an impetus for agglomeration: the growth rate of an industry within a region may be increasing in the size and “strength” (i.e., relative presence) of related economic sectors. Building on Porter (1998, 2003), we develop a systematic empiricalframework to identify the role of regional clusters – groups of closely related and complementary industries operating within a particular region – in regional economic performance. We exploit newly available data from the US Cluster Mapping Project to disentangle the impact of convergence at the region-industry level from agglomeration within clusters. We find that, after controlling for the impactof convergence at the narrowest unit of analysis, there is significant evidence for cluster-driven agglomeration. 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 ofsimilar clusters in adjacent regions. Importantly, we find evidence that new regional industries emerge where there is a strong cluster environment. Our analysis also suggests that the presence of strong clusters in a region enhances growth opportunities in other industries and clusters. Overall, these findings highlight the important role of cluster-based agglomeration in regional economicperformance. Keywords: industry clusters, dynamic economies of agglomeration, inter-regional spillovers.

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Acknowledgements: This paper has benefited greatly from the sustained research by Richard Bryden and Weifeng Weng in assembling the US Cluster Mapping Project dataset. Ben Jones, Jim Davis, Bill Kerr, Matthew Kahn, Jim Dana, Wayne Gray, Megan MacGarvie, Anita McGahan, Alex Bryson, Iain Cockburn,and Christian Ketels contributed helpful suggestions. We are particularly grateful for many insightful comments by participants in the NBER Productivity Lunch Series, the Research Seminar at IESE Business School, the NBER Summer Institute (IPE group), and the North American Regional Science Association International meetings. Mercedes Delgado gratefully acknowledges support from the KauffmanFoundation and the Innovation Policy group at the NBER. Any opinions and conclusions expressed herein are those of the authors and do not necessarily represent the views of the U.S. Census Bureau. All results have been reviewed to ensure that no confidential information is disclosed. Author contact information: Mercedes Delgado (Temple University; mdelgado@temple.edu), Michael E. Porter (HarvardUniversity; mporter@hbs.edu); and Scott Stern (MIT Sloan, NBER; sstern@mit.edu).

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Introduction A striking feature of the US economy is significant variation in regional economic

performance. For example, using the Bureau of Economic Analysis Economic Areas (EAs) as the unit of analysis, Porter (2003) documents large cross-EA differences in employment and wage growth during the 1990s,even when one conditions on the initial level of EA employment and wages (see Figure 1). Numerous theories have been proposed to explain why some regions achieve significantly higher growth rates than others, with particular emphasis on the role of initial conditions, the potential for innovation and knowledge spillovers, and the composition of economic activity (among others, Porter, 1990;...