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Our objective in this paper is to critically evaluate the prospects of achieving growth and competitiveness for small and medium sized enterprises in less developed countries (LDCs) using an industrial organisation framework which in recent years has aroused much excitement, namely the industrial district model. This model is concerned with local growth processes that arise from sectoral and regional concentrations of small and medium sized firms. Although inspired by a Western European experience it revitalised the research agenda on small scale manufacturing in LDCs (Tendler 1987, Schmitz 1989), and has lately led to the appearance of a small body of empirical studies on small firm clusters in developing economies. This area of inquiry, however, is at an early stage with findings as yet necessarily inconclusive and incomplete. Despite the growing interest in the subject, our knowledge of how industrial districts work in LDCs remains weak. There is, however, sufficient material, albeit of uneven quality and driven by divergent objectives, to make it worth our while to conduct a review of small firm clusters in LDCs. In doing so we attempt to draw out both broad conclusions from the LDC literature, as well as identify conceptual questions and empirical gaps which demand further reflection and need to be incorporated in the research agenda. Such a task is both timely and useful given the weight assigned to the industrial district framework as the conceptual engine behind empirical research (including our own) currently being formulated on small firms in LDCs.

The industrial district model brings with it a significant, and welcome, change of …