Agglomeration, clusters, and industrial policy

This paper considers the appropriate spatial scale for industrial policy. Should policy focus on particular places, targeting clusters of firms that are spatially concentrated? Or should it, instead, be space neutral, refusing to discriminate between different areas unless absolutely necessary? We provide an overview of the literature and identify two waves of literature that argue strongly in favour of a cluster approach. We argue that this approach rests on shaky theoretical and empirical foundations. In contrast, we suggest that more attention should be paid to the appropriate spatial scale for horizontal interventions. What can policy do to make cities work better, in ways that help firms to grow? That is, what is the appropriate role for agglomeration rather than cluster policy? Finally, we consider the possibility that some horizontal industrial policy objectives may be better served by specifically targeting particular places or from decentralized design or delivery.