Clustering is an important structure of production in the rural nonfarm sector. Based on a primary survey of rural handloom clusters in Ethiopia, this article examines the mechanism and performance of clustering. Given weak financial institutions, clustered producers and traders use trade credits to ease working capital constraints. Moreover, geographical clustering enables entrepreneurs with limited capital to enter the business through shared workspaces and fine division of labour. An improvement in infrastructure can further enhance firm performance in a cluster. In towns with electricity access, producers work longer hours by sharing lit workspaces at lower rental cost.
That is the abstract of the paper "Infrastructure and Cluster Development: A Case Study of Handloom Weavers in Rural Ethiopia." It was published in the latest number of the Journal of Development Studies. A draft is here. Some introductory notes on the geography of innovation and clustering are here.