Regional Clusters and Product Market Outcomes : Evidence from the Great Recession

We show that location within a dense regional cluster of interconnected businesses increases a firm’s resiliency in responding to changing economic conditions and is a key driver of competitive success. Compared to their rivals in less dense regional clusters, firms located in dense clusters exhibited higher valuations, faced lower uncertainty, and experienced higher market share growth over the Great Recession of 2008-2009 and the subsequent economic recovery. They sustained this performance through greater investment in physical assets, employees, organizational and knowledge capital, and relationships with customers. Cross-sectional variation in our results can be explained in the context of prior theory on the benefits of regional agglomeration of related firms