Traded clusters are groups of related industries that serve markets beyond the region in which they are located, selling to other regions and nations. Within clusters, entities operate more efficiently and can share common technologies, pools of knowledge, and demand. They are free to choose their location of operation tending to only appear in regions that afford specific competitive advantages. Examples of traded clusters include Financial Services in New York City, Information Technology in Silicon Valley, Video Production and Distribution in Los Angeles, and Automotive in Detroit [U.S. Cluster Mapping Project 2015].
Sets of traded industries are organized into 51 traded clusters based on a range of linkages, including input-output measures, use of labor occupations, and co-location patterns of employment and establishments [Delgado, Porter, and Stern, 2014].
Traded clusters are the "engines" of regional economies; without strong traded clusters, it is virtually impossible for a region to reach high levels of overall economic performance. The presence of traded clusters can be important drivers of regional competitiveness and innovation, and economic growth [Porter, 2003]. Traded clusters influence the local sector through employment and income growth. Traded sector clusters show in what industries a region has a competitive advantage and its diversity of economic activity.
The chart below shows traded clusters in metro Detroit. It is derived from data provided by the U.S. Cluster Mapping Project. On the vertical axis is the location quotient that measures concentration of activity, with 1.0 representing the same concentration as in the United States. On the horizontal axis is employment growth from 2010 to 2013, after the recession. The upper right quadrant shows traded clusters in metro Detroit with high concentration and high employment growth. The size of the bubbles or circles represents employment in 2013.
Automotive is the traded cluster with the highest location quotient (7.09) and greatest employment growth (48 percent). The concentration of the automotive cluster in metro Detroit is greater than any other region, and the Detroit automotive location quotient is the highest of any traded cluster in any region. Employment in the Automotive cluster in 2013 is 88,100. While experiencing rapid growth from 2010 to 2013, the Automotive cluster has lost 41,000 jobs in metro Detroit since 1998.
Other traded clusters that show concentration and employment growth in metro Detroit are:
- Metalworking Technology - Establishments in this cluster manufacture machine tools and process metal for use in metal working. The cluster also contains the downstream manufacture of metal fasteners and hand tools.
- Plastics - Establishments in this cluster manufacture plastic materials, components, and products. The plastics and foams are manufactured for packaging, pipes, floor coverings, and related plastic products. The cluster also includes the upstream manufacturing of plastic materials and resins, as well as the industrial machines used to manufacture plastics.
- Marketing, Design, and Publishing.
Business Services is the traded cluster with the greatest employment (178,800), and its concentration locally ranks 12th nationally. It has experienced, however, an employment decline of 0.58 percent since the end of the recession. Firms in this cluster include establishments and services primarily designed to support other aspects of a business or to assist unrelated companies. This includes corporate headquarters that are automotive related. Professional services such as consulting, legal services, facilities support services, computer services, engineering and architectural services, and placement services are included.
All the traded clusters in metro Detroit with high concentration and employment growth are interrelated with the Automotive traded cluster. This can be contrasted with Dallas that has six traded cluster with concentration and high employment growth that are diversified: Aerospace, Oil & Gas, Distribution & Electronic Commerce, Business Services, Hospitality & Tourism, and Marketing, Design & Publishing.
Detroit's economy remains exceedingly reliant on the Automotive and related traded clusters. Efforts to diversify the local economy have not been successful. Being highly dependent on the cyclical automotive industry, which is subject to global competition and influenced by the price of gasoline, makes the metro Detroit economy particularly vulnerable to the next recession.
The way to diversify the metro Detroit economy is to leverage its traded clusters and investigate the linkages between traded clusters with strength in metro Detroit and other traded clusters that can be developed locally. This approach will increase the likelihood of new traded clusters locally that can emerge and prosper. Further insight into this issue will be forthcoming.
Laura Tack, Research Assistant
Jonathan Silberman, PhD
Porter, Michael . "The Economic Performance of Regions," Regional Studies, Vol. 37, pp. 549-578.
Delgado, Mercedes; Porter, Michael; and Stern, Scott . "Defining Clusters of Related Industries," Working Paper 20375, National Bureau of Economic Research. http://www.nber.org/papers/w20375