Do local clusters matter? The forgotten importance of local cluster strength for individual companies. Evidence from Denmark

Christian Kjær Monsson

Student thesis: Master thesis

Abstract

This study investigates whether local cluster strength matters for the performance on individual companies. In recent years, empirical studies have been published about the effects of clusters on individual firms’ performance, such as Beaudry and Swann (2009), Kukalis (2010) and Wennberg and Lindqvist (2010), who investigate the effects of clusters on the growth and financial performance of individual firms. These studies have however focused on larger regions. The purpose of this paper is to investigate whether cluster strength effects can also be found in smaller geographical areas and for small and medium-sized companies (SMEs). I show that the literature on industrial clusters generally does not contest the existence of small local clusters, and I test empirically whether local cluster strength matters for the performance of SMEs. Denmark is used as the case country and data is collected on the number of employees and financial performance for more than ten thousand SMEs within 15 industries, and matched with data from the 98 Danish municipalities. I find that local cluster strength has a statistical significant impact on the lifetime growth of individual companies within many industries, especially within manufacturing industries. I find no evidence that local cluster strength has a positive effect on financial performance. The results are in accordance with much of the regional industrial cluster literature, but this study further concludes that cluster strength matters not only on a regional level, but also on a small and local level. The results have academic implications, policy implications, and company location choice implications.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2011
Number of pages109