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Discussion Paper Details

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Title: Industrial Clusters: Equilibrium, Welfare and Policy

Author(s): Victor D Norman and Anthony Venables

Publication Date: October 2001

Keyword(s): clusters, increasing returns, industrial policy and trade

Programme Area(s): International Trade and Regional Economics

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.

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Bibliographic Reference

Norman, V and Venables, A. 2001. 'Industrial Clusters: Equilibrium, Welfare and Policy'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=3004