Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/88069
Authors: 
Rodríguez-Clare, Andrés
Year of Publication: 
2005
Series/Report no.: 
Working Paper, Inter-American Development Bank, Research Department 523
Abstract: 
Industrial agglomerations or `clusters` arise in the presence of industry-specific and local externalities, also called Marshallian externalities. The standard argument is that such externalities may justify a policy of infant-industry protection to allow and encourage clusters to emerge. This paper explores that argument and shows that different policy implications emerge under a more realistic modeling of clusters. In particular, rather than distorting prices to promote clusters in `advanced`sectors that may exhibit strong clustering possibilities, countries should focus instead on promoting clustering in current sectors that have demonstrated the strongest comparative advantage. Import substitution is not a proper way to achieve such a goal.
Document Type: 
Working Paper

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