Clustering as a rational decision or a lucky accident: Herd behaviour as an alternative explanation of the emergence of sectoral clusters using an agent-based model

Abstract

The formation of sectoral clusters has long been the focus of geographical study (Marshall, 1890, Porter, 1998). Generally, agglomeration externalities are credited as the prime cause behind this process (Delgado, et al., 2014, Diodato, et al., 2018). This theory is however far from uncontroversial (Martin & Sunley, 2003) with many scholars proposing other explanations (Klepper, 2010; Vicente & Suire, 2007). Conventional neoclassical explanations typically lack a perspective on the psychology of firms’ decision-making (Berg, 2014). This study attempts to create an alternative perspective on clustering by incorporating herd behaviour as a decision-making strategy as a potential cause of clustering. An innovative agent-based model is used in which cluster formation is constructed from individual relocation decisions. In doing this, it connects individual relocation decisions to macro-level emergent patterns. This simulation shows that imitation has the potential to severely exacerbate the effects of agglomeration economies on clustering. The outcomes of this model challenge the dominant neoclassical view on clustering. An alternative hypothesis is postulated in which the interaction between herd behaviour and agglomeration externalities is proposed as an explanation for cluster formation.