New Horizons in Institutional and Evolutionary Economics series
Chapter 13: Creative Clusters and Innovation
with Michael Keane Prolegomena This chapter is based on unpublished work with Michael Keane on the role of cultural and creative clusters in China. It picks up on the theme of creative clusters, a core plank in creative industries policy. We argue that creative clusters play a significant role in the innovation process, a point we think has received insufficient attention thus far. 13.1 ECONOMICS OF CLUSTERS The economics of clusters – or what Alfred Marshall called ‘external economies’ and Paul Krugman calls ‘increasing returns operating spatially’ – is a simple concept that connects agglomeration to innovation (Porter 1996, 1998, 2000, Hall 1998). It is widely observed that creative industries seem to thrive in clusters. This chapter discusses the evolutionary economic explanations of this observation and the implications for creative industries and innovation. We begin with the economics of clusters. Businesses in similar markets gain from spatial co-location (that is, a cluster) due to external economies. These accrue in several ways. First, because there are both greater and more diverse opportunities for specialized work: clusters attract a pool of skilled workers. This lowers the cost to firms of finding and employing specialized skilled workers, an effect that extends to other input resources that may be directed to the cluster in greater quantity and via scale economies at lower price. So clusters offer good input markets. Second, the presence of many similar firms creates incentives for other businesses to establish specialist services to these firms that would not be viable if there fewer...
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