CHAPTER 3
Industrial Clusters as Natural Agglomerations of Micro and Small Enterprises: A Conceptual Framework Chapter 2 identifies capital intensity, manager’s educational background, and access to nonlocal markets as major factors contributing to the foreigndomestic gap in business performance in Africa. Removing the constraints facing domestic enterprises in those areas would improve their business performance and ability to catch up with foreign-owned enterprises operating in Africa. Productivity is the key factor facilitating market access for domestic enterprises, but firm size explains a large part of the performance gap between domestic and foreign enterprises. The vast majority of domestic enterprises in Africa are micro and small in size, and size is clearly the most significant binding constraint for domestic enterprises. One obvious approach to determining how firm size constrains the growth of micro and small enterprises is to examine the factors that facilitate their growth. Some studies have found that human capital and the manager’s level of education affect the size and growth of firms (for example, McPherson 1996; Ramachandran and Shah 1999; Ramachandran, Gelb, and Shah 2009; Mengistae 2006; Akoten and Otsuka 2007). Others have looked at investment behavior as the most straightforward way for enterprises to grow in size. Research based on data from the Regional Program on Enterprise Development finds that 41