Potential of Cluster Development and the Role of Cluster Support Policies in Latvia

The objective of this paper is to examine the role of institutional and policy support for cluster development, and the competitive advantages of regions based on regional labour force concentration. The tool of cluster identification in regional economies - Location Quotient (LQ) - has been applied to measure the concentration of the labour force in the main economic sectors of Latvia and Finland. This comparative analysis has shown that Finland has much stronger regional labour force concentration in certain sectors of the economy, which is not typical for Latvia and reveals that the regional economy of Latvia has much lower potential for cluster development and competitiveness in global markets. The results of this research confirm that governments should support cluster development to achieve sustainable long-term development based on natural growth poles, exploiting the potential of regional comparative advantages such as specific concentration of skills and knowledge (labour force), concentration of industries, natural resources, etc., but not concentrate on short-term priorities in cluster development.