Cluster theory and its application and cluster-based economic development policy, have been in the forefront of regional economic development theory and practice during the past decade. Cluster theory suggests that firms that are part of a geographically defined cluster benefit from being a part of that cluster and that these benefits result in growth in economic output for the region. It is important for policy makers and practitioners to understand how and in what ways they do so and what actions they can take to enhance economic growth through generating additional cluster benefits.

This paper takes a close look at the reasons, procedures, and results of cluster identification methods. Despite being a popular research topic in strategy, economics, and sociology, geographic clusters are often studied with little consideration given to the underlying economic activities, the unique cluster boundaries, or the appropriate benchmark of economic concentration. Our goal is to increase awareness of the complexities behind cluster identification, and to provide concrete insights and methodologies applicable to various empirical settings.

America’s research capabilities, entrepreneurial spirit and industrial prowess are poised to be focused and, in many cases, repurposed to realize the economic and employment returns many innovative technologies promise. However, if we are to be successful in assuring that all Americans share in this success, we need to expand the ability of many more locales to leverage their centers of basic research and related public and private R&D enterprises to enhance regional economic growth and competitiveness.

Over the last 30 years, researchers across the country have been documenting the shifts in university policies and practices enabled in no small part by the Bayh-Dole legislation of the mid-1980s, and the establishment and growth of the Small Business Innovation Research (SBIR) Program. These major shifts in national policy created an environment in which universities were free to manage their IP in ways that would support knowledge transfer as well as commercialization of new companies, along with an increased availability of private sector risk capital to support promising start ups.

The global economic landscape has changed dramatically during the past several years. The number of regions around the world that have the skills and capabilities to compete in science and technology-based industries has grown, offering leading companies numerous options for where they locate facilities or source their products.

National prosperity is created, not inherited. It does not grow out of a country's natural endowments, its labor pool, its interest rates, or its currency's value, as classical economics insists.

A nation's competitiveness depends on the capacity of its industry to innovate and upgrade. Companies gain advantage against the world's best competitors because of pressure and challenge. They benefit from having strong domestic rivals, aggressive home-based suppliers, and demanding local customers. 

The increase in the number and variety of “cluster” and “competitiveness” projects in USAID programs since the late 1990s has been accompanied by considerable confusion about concepts and terms. This paper attempts to clarify cluster theory and summarize research on USAID-supported cluster activities. It explains the different uses of the term competitiveness and distinguishes between cluster initiatives and broader efforts to increase the competitiveness of firms, industries and countries.

Employment growth is strongly predicted by smaller average establishment size, both across cities and across industries within cities, but there is little consensus on why this relationship exists. Traditional economic explanations emphasize factors that reduce entry costs or raise entrepreneurial returns, thereby increasing net returns and attracting entrepreneurs. A second class of theories hypothesizes that some places are endowed with a greater supply of entrepreneurship. Evidence on sales per worker does not support the higher returns for entrepreneurship rationale.

We investigate the speed at which clusters of invention for a technology migrate spatially following breakthrough inventions. We identify breakthrough inventions as the top 1% of US inventions for a technology during 1975–1984 in terms of subsequent citations. Patenting growth is significantly higher in cities and technologies where breakthrough inventions occur after 1984 relative to peer locations that do not experience breakthrough inventions.

Economic development always has been a moving target. Not surprisingly, there is growing evidence that the shape of economic policy and practice is changing significantly in many American states at the dawn of the 21st century. This new approach has public officials addressing new issues, using new tools, and beginning to experience new types of results. It is called cluster-based economic analysis and strategy development. This article reviews key literature and events that point to a new phase emerging in state economic development.