The Economics of Innovation behind Cluster Dynamic Processes

Abstract

Marshallian industrial districts may be an important stage in the emergence of networked groups of SMEs enjoying both Marshallian and Jacobian externalities. But sustainable growth depends upon transitioning to industrial districts within industrial ecosystems in which both local and national governments work together to craft and undertake policy frameworks that combine centralized strategic policy planning at the national level with decentralized authority and accountability at the local level. The concept of the industrial ecosystem is a modern expression of Marshall’s ‘collective organization of the district as a whole’. It is a way to think of a region’s population of specialized and differentiated enterprises and extra-firm, capability development infrastructures as integral to its productive structures and competitive advantage. It extends the policy domain from a market-centric to a production-centric economics perspective that focuses on capabilities and innovation. Major contributors include Adam Smith, Charles Babbage, Marshall, Allyn Young, Edith Penrose, Simon Kuznets and Jane Jacobs.

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