Murad Abel, DBA
Professor, Department Chair and Research Fellow,
University of Arizona Global Campus
June 12th, 2025
Keywords: Economics, Clusters, Innovation, Industry
Abstract
Technological innovation is transforming economies at unprecedented speeds, reshaping industries, and redefining national growth trajectories. Central to this transformation are economic clusters—geographic concentrations of interconnected businesses, institutions, and networks—which serve as engines of innovation, productivity, and regional development. These clusters enable collaboration among academia, government, and private industry, fostering environments conducive to the rapid development of next-generation products and services. Drawing on theories such as Schumpeter’s Creative Destruction, this paper explores how innovation-driven clusters support economic resilience, quality of life enhancements, and human capital development. It emphasizes the importance of infrastructure, data networks, and inclusive strategies in sustaining global leadership in innovation. Despite persistent barriers—such as resource limitations and technological adoption gaps—clusters offer scalable solutions through coordinated stakeholder efforts, startup integration, and cross-sector collaboration. The paper concludes that a hybrid approach to cluster formation, blending intentional design with organic growth, holds the greatest promise for advancing regional economies and addressing 21st-century challenges through shared innovation ecosystems.
Industry Cluster Innovation Through Collaboration
Technological change is accelerating at a pace unimaginable to our grandparents and great-grandparents. Advances in computing power and emerging technologies have reshaped our environment, making rapid innovation a critical driver of national growth. The development of new products and services not only influences economic health but also renews interest in expanding research and knowledge. This, in turn, encourages companies to bring cutting-edge offerings to market.
Economic clusters—regions where businesses, research institutions, and networks converge—play a vital role in fostering innovation. By enhancing connectivity and collaboration, these clusters create enriched environments that support the development of next-generation products and services. While improved GDP at local, state, national, and regional levels is one key benefit, such clusters also offer significant opportunities to enhance Quality of Life (QOL) and support long-term human capital development.
Technology Innovations
Technological innovation often drives broad economic growth within industries and regions (Thi & Do, 2024). When tied to infrastructure—such as railroads or the Internet—these advancements can deliver widespread benefits, especially for those who leverage resources effectively. For instance, the strength of data networks and fiber infrastructure, combined with advancements in artificial intelligence, significantly influence national growth prospects. As of this writing, the U.S. ranks among the top three countries on the Advanced Innovation Index 2024 (Dutta et al., 2024). However, maintaining this position requires intentional efforts to foster innovation through a more inclusive and networked approach.
Creating innovative environments accelerates the development of new products and services. In some cases, paradigm-shifting discoveries—such as breakthroughs in energy, AI, infrastructure, or materials—can rapidly transform multiple industries. With the right conditions, innovation clusters can give rise to entirely new sectors.
Joseph Schumpeter described this phenomenon as Creative Destruction—a natural economic process where old structures are continuously dismantled and replaced by new ones. As he wrote in Capitalism, Socialism, and Democracy (1942):
“The opening up of new markets, foreign or domestic, and the organizational development from the craft shop to such concerns as U.S. Steel illustrate the same process of industrial mutation—if I may use that biological term—that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism.” (p. 83)
Economic clusters offer governments a practical way to support innovation, economic development, and quality of life improvements. These clusters—often formed through partnerships among industry, academia, government, and communities—serve as microcosms of economic progress, enabling stakeholders to collaborate and mutually benefit.
Fostering clusters of related industries helps catalyze these natural processes. According to Porter (1998), such clusters are inherently innovative and contribute to economic resilience. They do so by forming networks of complementary businesses that boost efficiency and competitiveness—advantages that are difficult to replicate elsewhere.
Economic Growth Environments
Economies are complex systems that, when functioning effectively, generate value for both industries and the communities in which they operate. Technological advancement has long served as a catalyst for economic growth and has improved the quality of everyday life. The development of new technologies depends on a region's physical assets combined with human capital, which together create innovative advantages.
Industry clusters—geographic concentrations of interconnected companies, suppliers, and institutions—have been shown to foster innovation, improve efficiency, and increase productivity, enabling firms to compete at both national and global levels (Porter, 1998). Due to their significant financial and supply chain impacts, fostering innovation through clusters is increasingly viewed as a strategic avenue for economic development. For economies aiming to compete globally, the ability to produce cutting-edge technologies and engage in advanced manufacturing is essential to enhancing value and resource attraction.
More than fifteen years of research into industrial clusters suggests that rapid innovation arises from the interaction of multiple interrelated factors. These factors can be isolated, studied, and optimized to further accelerate cluster formation and effectiveness. Ideally, clusters should be purposefully developed to strengthen community resilience, address critical industry challenges, or advance sector-specific research. Centering cluster development around clear objectives can improve coordination and collective impact.
Collaboration among key stakeholders—including industry, academia, government, and local communities—can create robust economic ecosystems. These systems harness unique regional advantages, such as data assets, coordinated resource use, branding, process innovation, and management infrastructure, to foster scientific progress and address market or societal challenges (Tanaka & Lopez, 2024).
However, barriers frequently impede the adoption of new technologies within manufacturing sectors (Rached et al., 2022). Removing these obstacles is critical for promoting innovation and enhancing industrial competitiveness through technological advancement (Zou, 2024). Common barriers include lack of technical knowledge, high labor and installation costs, inadequate government support, limited resources, and insufficient infrastructure (Rashed, Bagum, & Haque, 2022).
Well-designed economic clusters aim to minimize these barriers by fostering environments that support industrial growth. Such environments ensure access to necessary infrastructure, promote skilled labor development, facilitate research and development initiatives, offer tax incentives, strengthen digital connectivity, and enhance overall quality of life. These factors collectively create fertile ground for industry development, resulting in mutual growth and problem-solving capacity within targeted sectors.
Stakeholder Collaboration
Collaboration is essential to building strong economic clusters due to the significant investment of time and resources required to develop their foundational elements. In some cases, clusters form organically, while in others, they emerge from strategic efforts to fill industry gaps or stimulate innovation. When key stakeholders identify critical bottlenecks to industry development, they often come together to address these challenges, aiming to drive regional economic growth by advancing business innovation (Pulido-Gomez, de Jong & Rivkin, 2025).
Clusters operate as interconnected systems, linking labor, education, firms, and networks to form viable, dynamic ecosystems (Konig, 2023). These connections enhance resource efficiency and add depth to the local business environment. Companies that effectively leverage cluster resources tend to adapt and grow more rapidly within competitive markets (Handoyo et al., 2023). This accelerated growth contributes to regional gross domestic product, strengthening the broader economy (Pyo & Choi, 2025).
Start-ups play a critical role in these ecosystems by acting as sources of innovative capital for larger firms (Giglio et al., 2025). Clusters create fertile ground for the launch and scaling of start-ups, providing the support and conditions needed to foster radical innovation. Such innovation often arises under specific environmental pressures that trigger a reordering of industries. For instance, the development of AI followed a Schumpeterian model of Creative Destruction, where new technologies replaced outdated ones and reshaped entire sectors (Ramazan, Tuluce & Aykac, 2024).
The potential to spur innovation across multiple industries is one of the most transformative outcomes of successful clusters. A single invention can influence several sectors through ripple effects across the supply chain. Cross-industry collaboration, particularly where inter-industry networks overlap, can amplify innovation (Shi & Xiao, 2024). Ultimately, building clusters is about cultivating environments that are not only capable of inventing new products and technologies but also of generating entirely new technological trajectories that were previously unimaginable.
Conclusion
The development of clusters can be driven by local and regional stakeholders to promote both social and economic growth. Clusters support higher levels of industry innovation by fostering shared goals, collaboration in research and development, resource sharing, and knowledge spillovers. When designed for industry advancement, they leverage common infrastructure and expertise to drive innovation. Alternatively, organically formed clusters can enhance economic resilience by connecting diverse industries around shared competencies and resources. A hybrid approach—combining elements of both intentional and organic development—may offer the greatest potential, maximizing local assets across social and economic dimensions.
BioDr. Murad Abel is a professor and Master of Business Administration (MBA) chair at UAGC's Department of Advanced Management Studies. He is also a research fellow and engages in economic review and research on clusters. He holds an MBA from Davenport University and a Doctor of Business Administration (DBA) from University of Phoenix. Dr. Murad Abel LinkedIn
References
Bedru, H., et al. (2020). Big networks: A survey. Computer Science Review, 37. https://www.sciencedirect.com/science/article/abs/pii/S157401371930282
Dutta, S., et al. (2024). Global Innovation Index 2024. World Intellectual Property Organization (WIPO). https://www.wipo.int/web-publications/global-innovation-index-2024/en/
Giglio, V., et al. (2025). Cooperation between large companies and start-ups: An overview of the current state of research. European Management Journal, 43(1). https://www.sciencedirect.com/science/article/pii/S0263237323000919
Handoyo, S., et al. (2023). A business strategy, operational efficiency, ownership structure, and manufacturing performance: The moderating role of market uncertainty and competition intensity and its implication on open innovation. Journal of Open Innovation: Technology, Market, and Complexity, 9(2), 100039. https://doi.org/10.1016/j.joitmc.2023.100039
Hua, L., Yang, Z., & Shao, J. (2022). Impact of network density on the efficiency of innovation networks: An agent-based simulation study. PLoS One, 17(6), e0270087. https://doi.org/10.1371/journal.pone.0270087
Kadlec, Ž., Josip, H., & Bedeković, M. (2018). Attracting investment in entrepreneurial zones of small cities by creating preconditions for the development of small and medium-sized enterprises. Interdisciplinary Management Research. https://www.researchgate.net/publication/368881896
Katz, B., & Wagner, J. (2014). The rise of innovation districts. Brookings Institution. https://c24215cec6c97b637db6-9c0895f07c3474f6636f95b6bf3db172.ssl.cf1.rackcdn.com/content/metroinnovation-districts/~/media/programs/metro/images/innovation/innovationdistricts1.pdf
König, T. (2023). Between collaboration and competition: Co-located clusters of different industries in one region—the context of Tuttlingen’s medical engineering and metal processing industries. Regional Science Policy & Practice, 15(2), 288-326. https://www.sciencedirect.com/science/article/pii/S1757780223002639
My Thi Thi, D., & Tran Phu Do, T. (2024). The interrelationships between economic growth and innovation: international evidence. Journal of Applied Economics, 27(1). https://doi.org/10.1080/15140326.2024.2332975
Porter, M. (1998). Clusters and the New Economics of Competition. Harvard Business Review. Available at: https://hbr.org/1998/11/clusters-and-the-new-economics-of-competition [Accessed 6 Dec. 2017].
Pulido-Gómez, S., de Jong, J., & Rivkin, J. W. (2025). Cross-sector collaboration in cities: Learning journey or blame game? Journal of Public Administration Research and Theory, muae026. https://doi.org/10.1093/jopart/muae026
Pyo, S., & Choi, S. O. (2025). Regional innovation and economic growth: Empirical insights from FGLS, FE-DKSE, and XGBoost-SHAP approach. Journal of Open Innovation: Technology, Market, and Complexity, 11(2). https://doi.org/10.1016/j.joitmc.2025.100524
Ramazan, U., Tuluce, N., & Aykac, M. (2024). Creative destruction and artificial intelligence: The transformation of industries during the sixth wave. Journal of Economy and Technology, 2, 296-309. https://doi.org/10.1016/j.ject.2024.09.004
Rashed, C. A., Bagum, M. N., & Haque, E. (2022). Adoption of technology and innovation in manufacturing sector: Current scenario. https://www.researchgate.net/publication/359732230_Adoption_of_Technology_and_Innovation_in_Manufacturing_Sector-_Current_Scenario
Schumpeter, J. A. (1950). Capitalism, Socialism, and Democracy (3rd ed.). Harper and Brothers.
Shi, J., & Xiao, Z. (2024). Research on the impact of inter-industry innovation networks on collaborative innovation performance: A case study of strategic emerging industries. Systems, 12(6), 211. https://doi.org/10.3390/systems12060211
Tanaka, M. L., & Lopez, O. (2024). Outlook on industry-academia-government collaborations impacting medical device innovation. J Eng Sci Med Diagn Ther, 7(2), 025001. https://doi.org/10.1115/1.4063464
Thi Thi, D., & Do, T. P. (2024). The interrelationships between economic growth and innovation: International evidence. Journal of Applied Economics, 27(1). https://doi.org/10.1080/15140326.2024.2332975
Zou, T. (2024). Technological innovation promotes industrial upgrading: An analytical framework. Structural Change and Economic Dynamics, 70, 150-167. 
