Explaining urban economic growth through cluster complementarity

Economic development strategies centered on the presence of industry clusters have become quite popular with local policy makers. With this in mind, we test whether or not the degree of cluster complementarity in a given urban area does in fact lead to it having a persistent economic advantage over its peers. Using a spatial factor model built on growth accounting principles, we show that this is indeed the case by identifying key agglomeration factors influencing urban growth. However, our results suggest substantial heterogeneity exists in the types of policies that are likely to best support local economies based on their cluster complementarity.