Growth Effects of Industrial Clusters

Abstract

This article develops a simple methodology for calculation of growth effects of industrial clusters at national level and estimates the economic determinants of the clusters’ size-class of production by using data on 354 individual industrial clusters in India. Gross value of industrial clusters is indirectly measured and growth effects are calculated within the National Income Accounting framework. Determinants are estimated by using the grouped data on size-class of value of production by clusters. Results show that industrial clusters contributed to India’s economic growth of manufacturing sector (or Indian economy) between 8 to 3 per cent (or between 1 to 0.4 per cent) in 2002–2003 and 2003–2004, respectively. Binary Logit estimates show that industrial clusters with modern small scale industries and traditional art and craft products, high and medium heterogeneity, high and medium potential for technology upgradation and exports and those which are market or resource based are the important determinants of size-class of production of clusters. Other things being equal, an improvement in these determinants may contribute to higher gross value added and maximization of economic growth by industrial clusters. This analysis is useful to calculate the determinants of probability of individual clusters belonging to larger size-class of production at the state level. Further, the approach is relevant and applicable to estimate growth effects of industrial clusters in other South Asian countries as well.