Modeling the Propensity for Industry Clustering

Abstract

This paper proposes a Cluster Propensity Model that explains the forces that affect the likelihood
that an industry will form clusters. The model considers the influence of the level of tacit
knowledge in an industry, the level of vertical fragmentation of firms in the industry, the effects of
savings due to shortened transportation distances and time for cross-company activities, and
government incentives. These forces are considered in the context of resources that are external
and internal to the industry. The interaction of these forces is described.