Coordination Failures,Cluster Theory,and Entrepreneurship: A Critical View

In the last decades, more and more economists have advanced the idea that significant obstacles impeding economic growth (especially in less developed regions) consist in different market failures, preventing entrepreneurs from taking the necessary actions to exploit profit opportunities: coordination failure. This paper provides a refutation of the idea that coordination failures as manifested in the inability of clusters to emerge can serve as a ground for government intervention. It uses the Porter, Rodrik and Rodriguez-Clare thesis as an example of this approach and criticizes the claim that coordination externalities prevent the market process to allocate resources optimally.