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Ties, Trust, and Trade

Abstract Industrial clusters are associated with positive economies of networking only because the benefits of specialization and trade among clustered firms are not offset by coordination costs. This article, drawing upon a diversity of theoretical sources, elaborates on this insight, explaining why coordination is particularly efficient in industrial clusters compared to other trade contexts. It argues that in clusters, firms are able to lower coordination costs of networking by means of social trust, while firms outside clusters have to rely on more costly coordination mechanisms. It defines and discusses trust and its origin, defines and discusses coordination and coordination problems, and explains the dominance of social trust within clusters through focusing upon information costs and social ties.