Dynamic clusters in developing countries: Collective efficiency and beyond

The alleged beneficial effects of regional industrial clusters for competitiveness andgrowth in developing countries have been subject to intensive study. A prominent place in thedebate has been occupied by the collective efficiency approach. In this paper we extend thatapproach by incorporating insights from the literature on firm-level technological learning indevelopment. The resulting framework is applied to the software cluster of Bangalore (India),to illustrate the ways in which spatial proximity of firms and other parties interacts with clusterknowledge creation in a dynamic environment. A number of new insights emerge, including theimportance of “old economy” factors such as high demand for innovation, internationaltechnology transfer, low wages and strong technology and education institutions. To the extentthat “new economy” regional factors also matter, spontaneous agglomeration advantagesappear to be important alongside active collective efficiency.