Clusters 101
A cluster is a regional concentration of related industries in a particular location. Clusters are a striking feature of economies, making regions uniquely competitive for jobs and private investment. They consist of companies, suppliers, and service providers, as well as government agencies and other institutions that provide specialized training and education, information, research, and technical support. The diagram above shows an anatomy of the Biopharmaceuticals cluster in Boston, MA.
Regional economies are the building blocks of U.S. competitiveness. The nation’s ability to produce high-value products and services depends on the creation and strengthening of regional clusters of industries that become hubs of innovation. Clusters enhance productivity and spur innovation by bringing together technology, information, specialized talent, competing companies, academic institution, and other organizations. Close proximity, and the accompanying tight linkages, yield better market insights, more refined researches agendas, larger pools of specialized talent, and faster deployment of new knowledge.
Clusters exist where the economic activities in a set of related industries in a given location reach critical mass. It is at this point that local linkages begin to have a meaningful impact on the performance of companies, and that important opportunities for local collaboration among firms and other organizations in the relevant fields arise. Clusters emerge naturally in the market process, providing productivity benefits to companies as they grow in size. They become attractive to companies looking for a new location and grow through the performance of companies already located there. Companies in clusters gain access to specialized regional suppliers, service providers, and institutions, and can also benefit from deep pools of skilled employees and shared infrastructure dedicated to their needs.
As research over the past few decades has shown, clusters exist in all types of economies and are more prevalent in locations that achieve better performance relative to their overall stage of development. They play a fundamental role in driving regional economic competitiveness by encouraging higher rates of job growth, wage growth, new business formation, and innovation in the regions they are located in.
It is useful to view economies through the lens of clusters rather than specific types of companies, industries, or sectors because clusters capture the important linkages and potential spillovers of technology, skills, and information that cut across firms and industries. Viewing a group of companies and institutions as a cluster highlights opportunities for coordination and mutual improvement.
Every regional economy has its own distinct profile of clusters. In order to standardize clusters and allow for useful comparisons of clusters across regions, the U.S. Cluster Mapping Project provides a set of benchmark cluster definitions (or cluster categories) that are the same in all U.S. regions, whether they are states, economic areas, metropolitan statistical areas, or counties. To create these benchmark cluster definitions, the U.S. Cluster Mapping research team created an algorithm to group together narrowly defined U.S. industry codes that show significant inter-industry linkages based on input-output measures, labor occupations, and the co-location patterns of employment and establishments. Learn about how these cluster definitions were arrived at in Cluster Mapping Methodology.
Regional economies are made up of two types of clusters, each with different patterns of geographic presence and different competitive dynamics. Traded clusters are groups of related industries that serve markets beyond the region in which they are located. They are free to choose their location of operation (unless the location of natural resources drives where they can be) and are highly concentrated in a few regions, tending to only appear in regions that afford specific competitive advantages. Since traded clusters compete in cross-regional markets, they are exposed to competition from other regions. Examples of traded clusters include Financial Services in New York City, Information Technology in Silicon Valley, and Video Production and Distribution in Los Angeles. Traded clusters are the "engines" of regional economies; without strong traded clusters it is virtually impossible for a region to reach high levels of overall economic performance.
Local clusters, in contrast, consist of industries that serve the local market. They are prevalent in every region of the country, regardless of the competitive advantages of a particular location. As a result, a region’s employment in local clusters is usually proportional to the population of that region. Moreover, the majority of a region’s employment comes from jobs in local clusters. Since local clusters are tied to the regions in which they are located, they are not directly exposed to competition from other regions. Examples include Local Entertainment such as video rental services and movie theaters, Local Health Services such as drug stores and hospitals, and Local Commercial Services such as drycleaners.
While local clusters account for most of the employment and employment growth in regional economies, traded clusters register higher wages, and much higher levels of innovation. Local clusters provide necessary services for the traded clusters in a region, and both are needed to support a healthy and prosperous regional economy.
Clusters also function as an effective instrument for public policy and industry collaboration by having the capacity to harness many different types of policies and programs directed at economic development. Learn more about this in the Resources section.
While many of the benefits of clusters arise on their own, active collaboration within a cluster can enhance the returns. In some clusters, cluster initiatives have arisen that strengthen the linkages between the various members of a cluster and serve as a platform for joint action. In other regions, organizations like regional competitiveness initiatives and institutions for collaborations play a similar role. Visit the Organizations section to identify examples of such organizations in your region or cluster.