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Industrial Clusters: Equilibrium, Welfare and Policy

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  • Venables, Anthony
  • Norman, Victor D

Abstract

This Paper studies the size and number of industrial clusters that will arise in a multi-country world in which, because of increasing returns to scale, one sector has a propensity to cluster. It compares the equilibrium with the world welfare maximum, showing that the equilibrium will generally have clusters that are too small, while there are possibly too many countries with a cluster. Allowing national governments to subsidize will move the equilibrium to the world welfare maximum, so there is no ?race to the bottom?. If subsidy rates were capped then there would be a proliferation of too many and too small clusters.

Suggested Citation

  • Venables, Anthony & Norman, Victor D, 2001. "Industrial Clusters: Equilibrium, Welfare and Policy," CEPR Discussion Papers 3004, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:3004
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    References listed on IDEAS

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    1. Henderson, J V, 1974. "The Sizes and Types of Cities," American Economic Review, American Economic Association, vol. 64(4), pages 640-656, September.
    2. Kind, Hans Jarle & Knarvik, Karen Helene Midelfart & Schjelderup, Guttorm, 2000. "Competing for capital in a 'lumpy' world," Journal of Public Economics, Elsevier, vol. 78(3), pages 253-274, November.
    3. Baldwin, Richard E. & Krugman, Paul, 2004. "Agglomeration, integration and tax harmonisation," European Economic Review, Elsevier, vol. 48(1), pages 1-23, February.
    4. James R. Markusen & James R. Melvin, 1981. "Trade, Factor Prices, and the Gains from Trade with Increasing Returns to Scale," Canadian Journal of Economics, Canadian Economics Association, vol. 14(3), pages 450-469, August.
    5. Huriot,Jean-Marie & Thisse,Jacques-François (ed.), 2000. "Economics of Cities," Cambridge Books, Cambridge University Press, number 9780521641906, October.
    6. Collie, David R., 2000. "State aid in the European Union: The prohibition of subsidies in an integrated market," International Journal of Industrial Organization, Elsevier, vol. 18(6), pages 867-884, August.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Forslid, Rikard & Midelfart, Karen Helene, 2005. "Internationalisation, industrial policy and clusters," Journal of International Economics, Elsevier, vol. 66(1), pages 197-213, May.
    2. Kurt A. Hafner, 2011. "Trade Liberalization and Technology Diffusion," Review of International Economics, Wiley Blackwell, vol. 19(5), pages 963-978, November.
    3. repec:got:cegedp:31 is not listed on IDEAS

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    More about this item

    Keywords

    Clusters; Trade; Increasing returns; Industrial policy;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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