Impact of the Types of Clusters on the Innovation Output and the Appropriation of Rents from Innovation

Abstract

The ability to generate innovations and capture the rents from innovation are important for firms' competitive advantage. Increasingly firms seek knowledge abundant locations, or industry clusters, to access novel knowledge and generate innovations through knowledge recombinations (Schumpeter, 1934). We examine how different types of clusters impact on the innovation output, the knowledge flows among the clustered firms and, ultimately, on who captures the rents from innovation. The type of cluster reflects the configuration of firms and the interactions among firms, individuals and agencies in the cluster and is likely to be a major driver of both the innovative output and of which firms will be more likely to capture the rents from innovation. Extant research has noted that the social and business networks binding firms in clusters are excellent vehicles for the flow of knowledge that eases innovations, but different types of clusters may lead to different outcomes.Keywords: clusters; types of clusters; innovation; appropriation of rents; innovation rents. However, despite the now long debate on the role and benefits of clusters and the equally extensive work on innovation, with a handful of exceptions the extant research has largely failed to probe on the actual innovation output gestated in clusters and on the firms that capture the returns from the innovations (see also Ferreira, et al., 2012). For instance, industry clusters do not have a common configuration (Markusen, 1996;Romanellii and Khessina, 2005) and it may be that different types of clusters impact differently both the innovative output and the innovators' ability to capture the benefits from the innovations.In this paper we seek to complement and extend previous research on industry clusters and innovation. In specific we focus on how the different types of clusters -for which we use the typology advanced by Markusen (1996) -influence the rate and type of innovations and which firms will be more likely to capture the rents from innovation. Specifically, we suggest that we need to look into the characteristics of the cluster to observe how the flows of communication, information and knowledge and workers occur among firms co-located. If not all clusters are alike it seems reasonable that no single answer exist. The implications of this study extend to firms, since they are concerned with appropriating the benefits from their innovations, to public policy makers in designing policies to promote cluster formation and thus it does matter the type of cluster promoted, and to managers in deciding whether to locate, or not locate, in each type of cluster. This paper is organized as follows. First, we review relevant literature on innovation and on industry clusters, namely highlighting the argument that clusters are locations of unusually high innovation activity. Then, we move to present Markusen's (1996) typology of industry clusters to discuss how different types of clusters are likely to have differentiated impact on the innovation output a...

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