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This paper examines the extent and importance of industrial clustering for national economic growth by investigating the relationship between industrial clusters and firm-level innovation in Africa. The paper is guided by an endogenous clustering model that assumes clustering depends on the growth stage of industrial development, which also is critical for the innovativeness of an industrial firm. As an industry grows, firms start to concentrate in similar locations and create clusters, but the profitability of the industry as a whole also then declines, which causes firms to innovate. To empirically test these hypotheses, we utilized the most recent data from the World Bank Enterprise Surveys datasets for 25 African countries for the years 2013 to 2020. Simple descriptive statistics and a binary logistic regression are used to examine industrial growth stage patterns and the relationship between clustering and firm-level innovation. Our analysis of industrial growth stage patterns indicates that most industries in Africa are at the emerging stage with a rising trend in firm numbers. With respect to the relationship between innovation and industrial clusters, a generally low level of innovation is seen, and we find no significant association between spending on research and development and industrial clustering. As clustering is an important driver of product and process innovations in industrial firms globally, these results suggest an important role for policy in ensuring that industrial clusters in Africa are transformed into innovation hubs.

Published as AKADEMIYA2063 Working Papers Series, No. 006.