Growing but not Developing: Long-Term Effects of Clustering in the Peruvian Clothing Industry

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Abstract

This paper analyses how a cluster of clothing firms in Peru fared over a 15 year period. The question is how and why this cluster has changed. We collected data for 1993 and 2007, comparing clustered and dispersed firms. The cluster grew significantly in terms of the number of firms and employment, due to the attraction of trade activities towards the cluster. The productivity of clustered producers fell somewhat, although they maintain an advantage over dispersed firms. This is due to static advantages falling into a producer's lap once located in the area and developing at the level of transacting inputs and output. Clustered producers do not use profits to upgrade businesses but rather invest in real estate. On the whole, they are struggling. Enhancing the quality of cluster governance is critical to prevent a further decline of the production part of the cluster.

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