Cluster Policy, Innovation, and Firm Productivity. An Econometric Assessment of the Flemish Spearhead Cluster Program

ABSTRACT The Flemish government launched its Spearhead Cluster (SHC) policy in 2017. The aim is to boost strategic sectors by setting up cluster initiatives which coordinate collaborative R&D initiatives. In this paper, we analyze whether becoming a member of such a cluster initiative has an impact on the Total Factor Productivity (TFP) of the firm. We exploit firm‐level data between 2013 and 2020 to estimate TFP and apply various difference‐in‐differences approaches to assess the programs' treatment effects. We find that becoming a member of a cluster has an average positive impact on firm‐level TFP of around 4% roughly, robust to different econometric specifications. A mechanism analysis suggests that the benefit of the cluster policy is driven by knowledge spillovers among the cluster members because we find that the positive treatment effect is negatively moderated by the distance among cluster members.