ABSTRACT
The capacity to innovate depends upon a series of factors which can be grouped into two: internal capacities, such as technological capabilities or absorptive capacity; and external conditions. These range from patterns of learning and innovation in different economic sectors, the degree of competition and market structures in inputs and outputs and agglomeration effects emerging due to proximity to a spatial concentration of businesses to name a few. Traditionally, the discipline of economics has paid little attention to the location of operations as a key driver of business performance. Agglomeration effects explain why some regions develop large concentrations or clusters of certain types of economic activities. This chapter focuses on clusters given the mainstream use of this concept. A cluster comprises of direct and indirect relationships that compete with each other and cooperate with each other in an industry involved in a specific product category.
