Developing Industrial Policy And Leveraging Clustering

  • A more advanced stage of industrial policy involves the intentional formation of clusters with industries that have synergies with extractive industries, related sectors, and technological institutes.
  • Clusters of geographically concentrated areas of industrial development are known to enable innovation, the dissemination of knowledge, the reduction of transaction costs, the acquisition of best practices, and an increase in competitiveness. 
  • With an emphasis is on the linkages that arise from mutual connections and interactions with individual industries and associated institutions, clusters bring together a concentration of expertise among closely linked industries and companies in which extensive investment in specialized factors of production catalyzes a growth trajectory.
  • Clusters can also be encouraged through the use of Special Economic Zones (SEZs) (for more information, refer to the Special Economic Zones (SEZs) section).
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[1] Porter, 1990; den Hertzog et al., 1999; Roelandt et al., 2000; Singh, 2001., as cited in Economic Commission for Africa, Minerals Cluster Policy Study in Africa: Pilot Studies of South Africa and Mozambique report, (Addis Ababa: Economic Commission for Africa, 2004), 25

Key Resources

Topic Briefing

Creating horizontal linkages may also involve creating a conducive environment for public-private partnerships involving economic research organizations, industry federations, and companies to raise initiatives aiming at the transfer of capabilities from one sector to the other.

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A more advanced stage of industrial policy involves the intentional formation of clusters with industries that have synergies with: extractive industries, related sectors, and technological institutes. Clusters of geographically concentrated areas of industrial development are known to enable innovation, the dissemination of knowledge, the reduction of transaction costs, the acquisition of best practices, and an increase in competitiveness. This is how Trinidad and Tobago, for example, enabled the development of horizontal linkages from its gas sector to the rest of the economy, as described in the key resource Extractive Industries: Optimizing Value Retention in Host Countries below.

A useful overview of clusters is provided by the Economic Commission for Africa in its 2004 Minerals Cluster Policy Study in Africa. More information on this report can be  found in the key resources below.

In essence, a “cluster” is a concentration of expertise among closely linked industries and companies in which extensive investment in specialized factors of production catalyzes a growth trajectory. The emphasis is on the linkages that arise because of mutual connections and interaction between individual industries and with associated institutions. Clusters arise through the flow of information or products between companies that are functionally linked together. The agglomeration of producers, customers and competitors, whether based on geographical proximity or linked by complementary expertise, promotes efficiency and increases specialization. Clusters that are well established have the ability to constantly reinvent themselves, which contributes to ensuring the long-term sustainability of a particular industrial sector. Not only do firms improve the competitiveness of the main activity, but they also absorb new functions and activities and generate technological spillovers.[1]

Sometimes these clusters can be encouraged through the use of Special Economic Zones (SEZs). For more information on the potential, challenges and options for SEZs, refer to the Special Economic Zones (SEZs) section.