National prosperity is created, not inherited. It does not grow out of a country's natural endowments, its labor pool, its interest rates, or its currency's value, as classical economics insists.

A nation's competitiveness depends on the capacity of its industry to innovate and upgrade. Companies gain advantage against the world's best competitors because of pressure and challenge. They benefit from having strong domestic rivals, aggressive home-based suppliers, and demanding local customers. 

Clusters are geographic concentrations of industries related by knowledge, skills, inputs, demand, and/or other linkages. A growing body of empirical literature has shown the positive impact of clusters on regional and industry performance, including job creation, patenting, and new business formation. There is an increasing need for cluster-based data to support research, facilitate comparisons of clusters across regions, and support policymakers and practitioners in defining regional strategies.

National prosperity is created, not inherited. It does not grow out of a country's natural endowments, its labor pool, its interest rates, or its currency's value, as classical economics insists.

A nation's competitiveness depends on the capacity of its industry to innovate and upgrade. Companies gain advantage against the world's best competitors because of pressure and challenge. They benefit from having strong domestic rivals, aggressive home-based suppliers, and demanding local customers. 

History tells us that societies succeed when the fruits of growth are broadly shared. Indeed, no society has ever succeeded without a large, prospering middle class that embraced the idea of progress. Today, the ability of free-market democracies to deliver widely shared increases in prosperity is in question as never before. The primary challenge democracies face is neither military nor philosophical.

Increasing interest in clusters among researchers and economists is only one aspect of a new approach to economic research and policy, one that supplements the macroeconomic and legal conditions necessary to achieve economic progress with microeconomic foundations. This report presents an overview of the current research on cluster-based economic development. First, it looks at key conceptual foundations of the cluster approach: the definition of clusters, different types of clusters, economic benefits that clusters provide, and factors that influence cluster performance.

Over the last decades, changes in the global economy and the emergence of Global Value Chains (GVCs) have raised interest in understanding the specific conditions and cross-company interactions within and across locations. For companies, the need to choose the right location for specific activities has moved from an operational to a strategic issue. For countries, regions and cities, competition raised the stakes of understanding how to improve productivity and attract firms in specific fields beyond providing low factor costs and subsidies. Many countries, from natural-resource-rich to transition economies and developed countries have launched competitiveness policies and cluster initiatives involving various stakeholders. This paper addresses how clusters can be leveraged for economic policy and what the role of different stakeholders in this process is. It summarises the cluster concept, focusing on the main theoretical framework and on recent empirical findings, and discusses key pillars of a cluster-based economic policy approach. The paper concludes with an application of the concept to resource-rich, oil-dependent economies.

Economic geography during an era of global competition involves a paradox. It is widely recognized that changes in technology and competition have diminished many of the traditional roles of location. Yet clusters, or geographic concentrations of interconnected companies, are a striking feature of virtually every national, regional, state, and even metropolitan economy, especially in more advanced nations. The prevalence of clusters reveals important insights about the microeconomics of competition and the role of location in competitive advantage.

A new framing of competitiveness has clarified the role of regions in economic policy. Its empirical findings align well with existing literature on the drivers of regional economic performance, but there are opportunities for mutual learning. A step-change in the availability of data on clusters and cluster policies has enabled new research approaches, yet current cluster policies have been largely focused on strengthening existing agglomerations rather than creating new ones.

The new microeconomics of competition is contained in frameworks that structure the complexity of competition and inform managers of choices that they must make. The role of location has shifted from factor endowments and size to productivity growth; factor inputs are abundant and accessed via globalization. To increase productivity, factor inputs must improve in efficiency, quality, and ultimately specialization in particular cluster areas, which are critical masses of companies in a particular location.

This National Bureau of Economic Research working paper sets foundational competitiveness as the expected level of output per working-age individual that is supported by the overall quality of a country as a place to do business. The focus on output per potential worker, a broader measure of national productivity than output per current worker, reflects the dual role of workforce participation and output per worker in determining a nation's standard of living.