Economic cluster theory has been used to describe the growth of many industries, including the automotive business around Detroit, high tech in Silicon Valley, and digital media in Seoul. These regions benefit by a concentration of complementary resources that might include leading research universities, low cost or highly trained labor, and geographic bounty. Understanding how clusters work can help governments develop effective policies for creating them, as well as direct entrepreneurs to the best locations to build their businesses.
Now, a new research paper suggests that economic clusters—usually used to explain development in local economies—have had a much wider impact on world economics than generally recognised. Harvard-Newcomen Fellow Valeria Giacomin calls clusters “the building blocks of the global economy.”
Giacomin notes that clusters have been around long before they had a name, showing up in the development of colonial-era industries and earlier. In her working paper A Historical Approach to Clustering in Emerging Economies, Giacomin takes advantage of this fact, proposing a longer, broader view of clusters and the role they play in developing economies and globalization at large.
“The cluster concept is often used to consider local factors,” Giacomin says, “but there’s a growing awareness that many clusters are also driven by external forces, such as foreign direct investment and multinational corporations, which results in a connection that occurs through knowledge exchange on the local level or across wider cluster networks.”
In that sense, she says, clusters become platforms for development, which has present-day implications for corporations, governments, and individual actors, especially in emerging economies.
Analyzing palm oil and ecotourism
Giacomin draws on two very different cases to analyze that phenomenon, first examining the evolution of the rubber and palm oil plantation clusters in Southeast Asia from 1900 to 1970 and then reviewing recent research on the rise of Costa Rica’s ecotourism cluster from 1940 to 2000.
As an exploitative plantation industry, the rubber and palm oil industries in Indonesia and Malaysia couldn’t be considered a civilising force, at least initially, Giacomin says. Yet, after rubber clusters based on foreign-invested estates had developed in the region, entrepreneurial smallholder farmers capitalised on existing infrastructure to farm rubber around the edges of established groves, creating a rubber supply parallel to that produced by the foreign direct-invested estates. This increase in supply drove down prices on the international markets, eventually leading multinationals to move into palm oil—a much more capital intensive crop to process, with higher barriers to entry for small farmers.