Impact Assessment

The Economic Impact of Cluster Initiatives under the Competitiveness Initiative Project, USAID 2003

    To generate wealth while raising the nation's standard of living, Sri Lanka's industries are striving to become competitive in global markets. To encourage the pursuit of competitiveness, industry clusters - those best able to understand the needs of industry and the role of government - assess industries and devise strategies for long-term success. Nathan Associates, along with J.E. Austin Associates, is managing The Competitiveness Program (formerly the Competitiveness Initiative (TCI)), a program offering direct assistance to eight industry clusters and supporting constructive dialogue between the public and private sectors. The project, running from 1999-2007, is promoting productivity by supporting sophisticated commercial strategies and a progressive policy environment.

    The project has supported development of industry clusters for ceramics, coir, information and communications technology, jewelry, rubber, spices, tea, and tourism; conducted benchmarking analyses of industry clusters; and worked with clusters to devise business strategies that stress value, market orientation, and productivity. They have also

    - Led strategy sessions on maximizing cluster participation in international markets while sustaining productivity and income gains,
    - Supported studies and technical assistance for strategy implementation, public sector policy change, and public-private sector dialogue,
    - Created a National Competitiveness Council for policymaking,
    - Assisted Sri Lankan Chambers of Commerce and private associations in advocating reforms, and
    - Had Sri Lanka included in Global Competitiveness Report, 2001

    The paper below, by Nathan Associates Chief Economist Bruce Bolnick, assesses the progress of TCI in 2003. It addresses questions such as: Have cluster initiatives delivered sufficient benefits to justify foreign assistance? Do they promote economic development? Are particular types of cluster activities successful? The paper attempts to assess TCI by considering costs as well as benefits in a net present value framework. The paper defines economic impact as the expected present value of additional net income generated directly by TCI cluster initiatives. To be evaluated, cluster activities had to generate benefits that were quantifiable, highly probably, and attributable to the project. In other words, there had to be a sound basis for the impact calculations, a strong likelihood that the activities would be implemented, and a clear indication that the TCI project played a critical role in producing or accelerating the economic benefits.

    Summary of results
    Using conservative parameter values, these cluster initiatives are expected to yield aggregate benefit of $69 million (after discounting for possible impediments to implementation, and the possibility that similar outcomes could have arisen through other channels). This lowerbound estimate of the economic impact gives a cost-benefit ratio of 10:1 for overall portfolio of TCI cluster initiatives.

    The role of the project extended far beyond just getting groups together. Nearly all of the main impacts emerged from groups plus technical assistance. The technical assistance provided worked as a catalyst for new ideas, a challenge to conventional thinking, a glue to hold the group together, a spotlight on innovation opportunities, and an impetus to motivate action. In short, the TA was essential to help the clusters convert deliberations into well focused plans, action, and results. At the same time, the cluster approach leveraged the impact of the TA, due to the obvious advantages to supplying ideas, marketing arrangements, and technical information to a number of companies at once.