Re-thinking Cluster Theory

I feel that I must first admit that I haven’t actually finished reading Porter’s The Competitive Advantage of Nations. I have it on my shelf right now but I haven’t gone past chapter two mainly because of my other academic obligations. Not to mention that it’s a very thick book. Probably thicker than War and Peace! (I haven’t finished reading that one either)

Anyway, an interesting thing I learned about cluster theory is that it is actually a theory based largely on correlation rather than hard statistical facts that indicate causation. While the theory was built out of an empirical study of numerous industries from ten nations, I have been told that these were really case studies that didn’t delve deeply enough into the data.

The thing with correlation is that it does not imply causation. To base a theory on mere correlation would make it potentially weak and unable to stand up to hard tests. As we’ve seen in my previous post, there are some problems with the theory and it needs a hard re-think. To add to that, I also got an early preview of Stephen Chen’s work relating to cluster theory. The finding of that study was that cluster theory, in its current form, does not stand up at all to statistical tests. Basically, it’s premature to say that clustering firms together causes an improvement in their performance. He even goes so far as saying that the relationship might be the other way around or even spiral.

I would probably rate this as the most interesting personal discovery of the week. Considering that cluster theory is being used by many governments these days, you would think that they thoroughly scrutinised it first.



Filed under Clusters, Planning, Technopreneurship

2 responses to “Re-thinking Cluster Theory

  1. Although I am not too familiar with the details of clustering theory, I have been introduced to some related ideas through meeting Mr. Dennis Posadas, author of “Rice Bowl and Chips”. What I would like to note, however, is that while the “Silicon Valley” effect may not be a certain and immediate outcome of localized clustering of technology companies, history suggests that innovation, productivity, and economic development is generally a natural long-term effect of high population densities. Julian Simon argues this in a number of his writings, including “Is Population Growth A Drag on Economic Development” ( I think we should not underestimate the incredible dynamism that is brought about by social and economic interaction. Perhaps more long-term studies on clustering will shed some light in the future.

  2. Hi manny,

    I agree with you that the benefits of social and economic interaction is undeniable. From the way I understand it Chen and Malmberg & Power are simply saying that a “cluster” does not have to limit itself to the local geography. That those in charge of developing an industry cluster should look beyond the “productised” view of a cluster as offered by consultants. Furthermore, while their findings show that our understanding of a cluster and how it works is flawed, they do not altogether treat it as useless.

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