Challenging ClustersThe Prospects and Pitfalls of Clusteringfor Innovation and Economic Development

Clusters are systems of localised economic activity and innovation. This report reviews current evidence on clustersand develops policy recommendations for the UK. It argues that clusters include multiple firms from related sectorsthat are co-located within a web of complex linkages and a support infrastructure. We find that:Clusters matter because they have the potential to increase innovation in and between firms, raise productivityand competitiveness and hence contribute to regional and national economic growth.Clusters emerge spontaneously, taking advantage of existing local endowments or economic conditions ina variety of ways. They are heterogeneous in nature and there is no evidence that sustainable clusters can becreated where no competitive advantage exists.Cluster development relies upon the creation and attraction of firms, which implies both access to capital and apositive attitude to risk.[...]