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Clustering In Financial Services: A Literrature Review

2187 words - 9 pages

The theory of cluster has became one of theory that considered important in the regional economic development theoryin the recent worlds. It suggest that the co-ocation or geographic proximity results for firms that do clustering will be crucial to increase the economics scope of the firms, mainly due to lower input cost that are resulted from agglomeration economies and facilitates knowledge spillovers which can increase the firms’ productivity (Wolman and Hincapie, 2010, p1). Therefore, this can creates more competitive firms that do the clustering, and also produce significant growth for the firms. However, Duranton (2011, p32) states that the causality of forming cluster may not clears because firms may be more productive and competitive due to the clustering but it may also comes from different ways. Firms that is more productive and competitive would want to form a cluster.

For financial services, clustering may be one of the theory that need to be considered, mainly due to the nature of service organizations. Therefore, this paper has purpose to do literature review of clustering in financial services. The discussion will starts on the definition of cluster, type of cluster and financial clustering, cost and benefits of clustering, as well as the empirical evidence of clustering in financial services.

2. Discussion
2.1 Definition of Cluster
There are various definition of cluster in the literatures. One of the commonly cited definition of cluster is Porter (1998) which define cluster as “Geographic concentrations of interconnected companies and institutions in a particular field, linked by commonalities and complementarities”. But, there are many other definition of cluster in the literautre, and the meaning of cluster is somewhat described differently by authors. Martin and Sunley (2003, p16) argued that the concept of cluster has been used in variety ways, meanings, and connotations that it become chaotic concept. Martin and Sunley (2003, p12) list different definition of clusters as follows:
a) Krugman, (1991): New economic geography: Clusters as co-location decisions of firms due to increasing returns to scale, lower costs of moving goods across space, etc.
b) Rosenfeld (2005): clusters “are simply geographic concentrations of interrelated companies and institutions of sufficient scale to generate externalities.”
c) Cortright (2006): “An industry cluster is a group of firms and related economic actors and institutions, that are located near one another and that draw productive advantage from their mutual proximity and connections”.
d) Glaeser and Gottlieb (2009): “People cluster in cities to be close to something. At their heart, agglomeration economies are simply reductions in transport costs for goods, people, and ideas” (p.1005).
e) Marshall (1890): Clusters as external economies created by labor market pooling and the benefits of moving people across firms, supplier specialization, knowledge spillovers

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