Industrial Clusters : Complexes, Agglomeration And/Or Social Networks

Disambiguates theories of industrial clusters by providing a framework of three ideal-typical forms of clustering: the classic model of pure agglomeration, the industrial-complex model, and the social network or club model. The first two of these models come from classical and neoclassical economic tradition. The third comes from sociology. An analytic definition of these models and a discussion of their implications are provided. The economic models are also contrasted with the sociological model. The analysis examines how the theories might be empirically tested using actual data from the London area, and discusses the significance of the distinction between these models for policymakers. The model of pure agglomeration arises from Marshall and Hoover. Marshall theorized that firms localize in a given geographic area due to the development of a local pool of specialized labor, the increased local provision of non-traded input specific to an industry, and the maximum flow of information and ideas. Hoover classifies the sources of agglomeration advantages into three groups: internal returns to scale, localization economies, and urbanization economies. Industrial complexes are characterized by sets of identifiable and stable relations among firms which are in part manifested in their spatial behavior. Traditionally, the focus of the analysis under this model is how location affects transaction costs. The social network model sees the creation of organizations is a rational response to the transaction cost problems caused by bounded rationality and opportunism in a pure market-contracting economy. Because such a system requires interpersonal trust, proximity has often be a prerequisite for the development of social networks. (CAR)