Local leaders make sound economic decisions
The study, based on a unique long-term project collecting data on regional economies, has important implications for policymakers: It suggests that a region can improve its economic performance by improving its existing assets, rather than attempting a transformation by chasing industries situated elsewhere.
After all, most U.S. cities will probably not lure many high-tech businesses away from Silicon Valley, financial firms away from New York, or entertainment companies away from southern California. However, as the study implies, these would-be suitors don't have to pursue complete makeovers.
"Very often, regions are given advice that they should become the next Silicon Valley, or be like some other region," says Scott Stern, the David Sarnoff Professor of Management at the MIT Sloan School of Management, and co-author of a new paper detailing the study. "They're told that they're in a global war for talent, or they should try to put out very expensive incentives to attract a single plant. What our research suggests is that regions succeed by investing in and extending their comparative advantage."
Stern is a co-author of the paper with corresponding author Mercedes Delgado, a professor at Temple University's Fox School of Business, and Michael Porter, a professor at Harvard Business School.
The study examined 41 industrial clusters, 589 different subfields of industry, and 177 regions in the U.S. Each cluster is composed of multiple related industries that, as the paper states, offer "complementary activities that give rise to increasing returns." Quantifying the cluster effect in detail, Stern hopes, will help local leaders make sound economic decisions.