What are the differences between industrial clusters and industrial agglomerations? Explain.
Ans. An industrial cluster is an agglomeration of specific industrial activities and related services in a geographically small area. Industrial clusters are considered as an effective means of industrial development and promotion of small and medium-sized enterprises. Cluster is a geographically proximate group of interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities (external economies) in India. Industrial agglomerations are proximate groups of firms belonging to the same industry or closely-related industries that could potentially, but not necessarily, interact. When interactions occur, they are basically buyer-supplier interactions based on market transactions given the price consideration rather than social relations or norms. The density of firms and/or employment within a geographical area is the main defining feature of industrial agglomerations. The distinction between clusters and industrial agglomerations is relevant both theoretically and empirically. Theoretically, industrial agglomerations are not considered as entities in themselves of their lack of inter-firm and institutional networks. Contrary to clusters, industrial agglomerations are more industrial than regional phenomena.
The latter are the expressions of the neoclassical economies and transaction cost views of competitive behaviour driven by self-interested and profit-maximising agents.
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