Public Cluster Policy and Neighboring Regions : Beggar-Thy-Neighbor?

Research on public cluster policy has largely taken a perspective evaluating firm performance or local cluster performance, almost neglecting spillover effects on neighboring regions. This study evaluates the effects and performance of public cluster policy in three ways. Firstly, by evaluating public cluster policy per se. Secondly, whether positive effects are shaped as a consequence of the ‘picking-the-winner' competition or by the subsidizing effects afterwards. Finally, whether effects of public cluster policy spill over to neighboring regions or are mainly bounded locally. Based on a unique panel dataset encompassing all German labor market regions and covering a 15-year period, we apply difference-in-difference estimations and quantile regression techniques to identify and separate the different effects. Our results confirm positive cluster effects of the chosen industries, but also show that positive externalities are spatially limited. Policy makers should be aware of the local boundedness of public cluster initiatives and possible adverse ‘beggar-thy-neighbor' effects