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.

As the world struggles to emerge from economic recession, national, regional, and local governments are seeking new, cost-effective ways to stimulate growth and job creation. One of the most interesting strategies is the development of economic clusters of innovation. Traditionally, these clusters have been defined by specific geographies and colocation. The Cisco® Internet Business Solution Group (IBSG) hypothesizes that with the advent of new communication and collaboration technologies, geography need not be the overriding factor for a successful cluster.

Innovation is the critical component of long-term economic prosperity, driving productivity growth and (if spread across key sectors of the economy) ensuring broad-based economic growth. Sparking innovation, however, requires capital (which is threatened by the current economic downturn), skilled-labor, scientific and technological advances, and creative collaboration between government and the private sector. Innovation cannot be dictated, but it can be cultivated.

In an era of increasing global competition and urbanization, many rural areas in the United States struggle to maintain their economic vitality and viability. Although there is no single comprehensive measure of economic performance, researchers agree that rural areas of the United States, in general, have historically underperformed urban areas. Typically, per capita income is lower than in metropolitan areas overall, the incidence of poverty is higher, and education levels lag.

Cluster strategies have the potential to accelerate regional economic growth, but only if they are properly understood and applied. This Governor’s Guide examines the changing economic environment in which clusters function, summarizes the lessons learned from recent experience, and offers practical recommendations for cluster initiatives that governors can take to strengthen their states’ economies.

Twenty years after Harvard Business School professor Michael Porter introduced the concept to the policy community and 10 years after its wide state adoption, clusters—geographic concentrations of interconnected firms and supporting or coordinating organizations—have reemerged as a key tool and rubric in Washington and in the nation’s economic regions.