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By Sonobe Tetsushi Otsuka Keijiro

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Extra info for Cluster-Based Industrial Development: An East Asian Model

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Yet, as was discussed in Chapter 1, development economics has paid little attention to the role of industrial clusters in industrial development. The ultimate objective of this book is to explore the evolutionary process of the formation and subsequent development of industrial clusters within the context of long-term industrial development. In order to do so, we need to inquire not only about the conditions under which the geographical concentration and dispersion of industries take place but also the fundamental mechanisms by which an industrial cluster develops.

These observations are consistent with the existence of the “collective efficiency” of industrial clusters (Schmitz, 1995b). According to Schumpeter (1912), innovation is the process by which entrepreneurs create a new combination of production resources to increase their profits, and it includes the improvement of products, production methods, production organization, and marketing, as well as the discovery of a new source of materials. While the existing theories of product life cycle highlight narrowly defined technological changes, these various improvements play important roles in industrial development in developing countries as our literature survey in the previous sections attests to.

As he neatly demonstrates, a reduction in transport costs leads to the geographical concentration of production in fewer locations, because of scale economies or the collective efficiency of industrial clusters. In other words, given lowered transport costs, the sum of production and transport costs is minimized by production by a small number of large, efficient industrial clusters, rather than a large number of small, inefficient clusters. It is, therefore, no wonder that the era of globalization is also the era of industrial clusters.

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