Nano-economics, spinoffs, and the wealth of regions
Accepted: 1 July 2011 / Published online: 19 August 2011
Ó Research Institute of Industrial Economics 2011. This article is published with open access at Springerlink.com
Abstract The historical evolution of four promi-
nent industry clusters is compared: automobiles in
Detroit, Michigan, tires in Akron, Ohio, semiconduc-
tors in Silicon Valley, California, and cotton gar-
ments in Dhaka, Bangladesh. Detailed data are
collected concerning the intellectual and geographic
origins of entrants into the clusters and other regions
to probe the mechanisms underlying geographic
clustering. The main mechanism at work in the four
clusters involves employees leaving established ﬁrms
to found their own ﬁrms or shape new entrants in
their industry. Questions and policy implications
related to the spinoff mechanism and the mobility of
employees are discussed.
Keywords Spinoffs Á Clusters Á Agglomeration
JEL Classiﬁcations R11 Á R12 Á L26 Á L63
Why do some industries cluster in one or a few
geographic regions that do not possess any natural
advantages for producers in the industry?
Much has been written about this question in
recent years. Alfred Marshall’s (1920) inﬂuence is
unmistakable. Marshall conjectured that ﬁrms cluster
geographically because (initially) it is beneﬁcial. The
beneﬁts come in three forms. First, when ﬁrms cluster
then labor clusters. The clustering of labor makes it
easier for ﬁrms and workers to match their idiosyn-
cratic characteristics, making both more productive.
It may also reduce the incidence of unemployment.
Second, clustering facilitates learning from other
ﬁrms, via localized technological spillovers, enabling
all ﬁrms in clusters to be more productive. Third,
when ﬁrms in an industry cluster it gives an incentive
for their suppliers to cluster there also, thereby
lowering transactions costs and making both the ﬁrms
and their suppliers more productive.
All of these beneﬁts, which are called agglomer-
ation economies, are considered externalities. When
ﬁrms enter, they confer beneﬁts on other ﬁrms located
nearby that they generally do not take into account in
their entry and location decision. Therefore, clustering
will occur to a lesser extent that is socially optimal
without public intervention. Therein lies the interest in
clustering—it can justify proactive public policies.
To what extent is the evidence consistent with
Marshall’s conjectures? This is difﬁcult to assess
Steven Klepper is the 2011 Winner of the Global Award for
Entrepreneurship Research. This essay is the Prize Lecture
given upon receipt of the Award on 18 June 2011 in
Stockholm, Sweden. For more information about the Prize and
previous Winners see www.e-award.org.
S. Klepper (&)
Department of Social & Decision Sciences,
Carnegie Mellon University, Pittsburgh, PA, USA
Small Bus Econ (2011) 37:141–154