Agglomeration theory and entrepreneurship

For some time there has been interest in the question of whether clusters form because of entrepreneurship, or whether clusters benefit entrepreneurs (Delgado, Porter, and Stern, 2010).

Clusters refer to geographic concentrations of similar firms, such the technology firms in Silicon Valley. Researchers are interested to know if clusters breed and boost entrepreneurs to see if pro-cluster policies, such as smart parks, make economic sense. Researchers also want to know if entrepreneurs are better off in clusters or not to inform industrial policy around entrepreneurship education and training (Cusmano, Morrison and Pandolfo, 2015).

Spinouts: where employees from firms in a cluster leave to start complementary or competing independent ventures, are seen as important to the diversity and competitiveness of clusters. They are especially important because spinouts tend to stay close to their parent firms and their own networks. Thus, where there are many spinouts, there tends to be an clustering effect.

In places where there exist fewer barriers keeping employees from spinning out new ventures, there are more spinouts (Cordes, Richerson and Schwesinger, 2014). For instance, California does not enforce non-compete agreements, so there is more potential for agglomeration.

Since half of spinouts stay in the cluster (Berchicci, King and Tucci, 2011), the cluster grows through density and niche development.

An interesting idea is the possibility of a cluster effect whereby there is more value created when many firms of the same kind compete near each other. Examples of clusters include a grouping of automobile dealerships along the same stretch of highway, or a downtown street full of shoe stores

Sources:

Delgado, M., Porter, M. E., and Stern, S. (2010). Clusters and entrepreneurship. Journal of economic geography, 10(4), 495-518.

Cordes, C., Richerson, P. J., and Schwesinger, G. (2014). A corporation’s culture as an impetus for spinoffs and a driving force of industry evolution. Journal of Evolutionary Economics, 24(3), 689–712.

Cusmano, L., Morrison, A., and Pandolfo, E. (2015). Spin-off and clustering: a return to the Marshallian district. Cambridge Journal of Economics, 39(1), 49–66.

Berchicci, L., King, A., and Tucci, C. L. (2011). Does the apple always fall close to the tree? The geographical proximity choice of spin-outs. Strategic Entrepreneurship Journal, 5(2), 120–136.

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