Agglomeration Advantages and Capability Building in Industrial Clusters: The Missing Link

Accumulation of technological capability is crucial for industrial growth and competitiveness of firms, particularly in the context of liberalisation and increasing international economic integration. The article sheds new light on the forces driving capability-building by complementing the micro-economic perspective on learning with a meso-economic perspective that takes account of interaction effects arising from firms' embeddedness in regional networks. The missing link at the interface between the two levels is explored by means of a taxonomy linking various agglomeration advantages to investments in technological effort. The framework results in new policy-relevant insights about the factors underpinning the acquisition of capabilities in comparison to conventional studies. A case study about farm equipment manufacturing in Pakistan's Punjab province is used as an empirical illustration.