cluster growth and energy demand cld presentation

1. CLUSTERS GROWTH AND ENERGY DEMAND
A REFLECTION ON SUSTAINABLE CLUSTER
Surapong Soponkij
Rattanakosin College for Sustainable Energy Environment, Rajamangala University of
Technology Rattanakosin, Salaya, Phuttamonthon, Nakorn Pathom 73170, Thailand
Corresponding author: tokenn@hotmail.com
2009), clustering is a function of the number and
ABSTRACT quality of linkages among firms and with other
elements of the economy. It is the linkages that
This paper studies the dynamic correlations between enable a vigorous level of innovation and other
cluster growth and energy factors by using a system technologically related activities through production-
dynamic modeling approach. Though energy is change benefits. From significant finding (Cornillie
inevitable as the matter that reflects the growth of and Fankhauser 2004) of declining energy intensity is
economic activity, its transaction cost and the one of the major improvements of transition
security issues for developed and emerging economy in production changes. The decomposition
economies, there is no empirical finding between
model distinguished 4 factors as relative importance
cluster growth and energy demand. It is significant
of energy-intensive economy as follows; energy
finding that innovative clusters leverage their
intensities of industry, transport and economy
technological development in cost-benefit energy
intensity which requires long-term projection of transitions (agriculture, services, and residential), and
energy security to sustain its cluster growth. In this the effect of structural change in which significantly
paper, it simulates how clusters have reflected the contributed to reflect the declining and improvement
feedback effects on economic growth and energy of energy intensity.
consumption along cluster dynamic which correlates
the condition scenarios of energy demand indicated Finally from results, energy intensity defined as
by technological, economical, and sociological energy use per GDP that depends on socio-economic
factor. and environmental benefits as the matter of the fact
that declining in energy intensity could be therefore
INTRODUCTION considerable to market-based reform in economy-
Cluster becomes a key mode of economic efficient improvement (Bhattacharyya and
concentration and focus of government policies Ussanarassamee 2005). From such finding, energy
across the world and for a wide variety of industries. demand in transition country tends to be highly
There have been government enthusiasms for intensive consumed by transport sector whereas
encouraging industrial cluster development aimed
particularly in innovative transaction, technology Background of literatures and analysis model
regimes and knowledge spillovers, though not This paper attempts to conceptualize clusters on the
exclusively, to evolve economic efficiency basis of existing literature in cluster dynamics that
(Iammarino and McCann 2006). Whereas the key reflecting cluster growth in transition economic. It’s
feature of clusters policy are dynamic correlations clear that most influential work of Michael Porter
between productivity changes, innovation, and new (1990) is starting point for clusters analysis. Also
linkages of economic transition (Tim Padmore 1997). Porter’s diamond model provides cluster initiative
approach when policy maker decides to focus on
Transition economies often focus on a mix industry cluster examining process (Porter 1998).
types in developing countries. Transition economy
often means a changing planned economy to a Cluster Growth and Full Diamond
market economy. However, the development of For cluster often involves networking and emerging
market economies in developed countries, there is social capital. The more social capital within a
advanced economy to focus high-tech industries region would expand sophisticated-cluster network to
(Mans, Alkemade et al. 2008) that are considered as develop more rapidly. The diamond (Porter 1998)
attractive cluster policy to gain government’s works as an engine to drive an upgrading cluster to
attention to promote funding to creates incentives for emerge upstream and downstream linkage for rivalry,
cluster partners to actually collaborate on high- cooperation, openness to international markets, and
technology sectors. According to cluster (Solvell finally lead customer demand.

2. By examining Porter’s diamond model, there are Objective
some concerning linkages of factor conditions which To simulate break-through scenarios among energy
local firm in particular cluster needs to overcome factors in technological, economical, and sociological
such as supply of natural resources, in this study
explicitly referred to energy resource in transition To probe whether energy intensity make difference in
economy, per development of technology-related in cluster dynamic in term of attracting social capital
advanced factors. In addition to this model, it derives
demand conditions for local demand or existence of Scope of study
local resources that cluster will interact with regional The purpose of this paper is to introduce a simulation
or local labor market and Research University to modeling of system dynamic with selected scopes of
advance innovative upgrading for related process-based transitions in cluster dynamic which
intermediate production. This is how cluster reinforces economic transition and drives the demand
initiatives involve in economic development to of energy efficiency thoroughly. Although much
maximize the benefits of local presence. They must comparative work between economic growth and
foster substantial local investment and bound energy consumption on the impact of industrial at the
ongoing relationships with government bodies and national level has been conducted, our challenge to
policies and local institutional such as utilities, regional activities aggregated or defined as regional
schools, financial services, media, and research cluster are far forwarding discussion and analysis to
groups. For a cluster to continue to mature and grow, reinforce the interaction of cluster dynamic between
factor markets of both firms and people are the main R&D institution and private innovative SME through
circulation in social capital including formal and establishment of collaborative policy.
informal network of personal and corporate network,
organization for collaboration, brainstorming, idea, To advocate government’s enthusiastic public policy
skill and resource on which must be attracting to the maker from transition countries, our scenarios will be
inflow of international market with different inward based upon a couple decades’ time series from year
investment (FDI – foreign direct investment and VC 1985 – 2005 of empirical case studies from diverse
– venture capital), import of materials, components groups of industrial countries, government agencies,
and products, and new technologies (Yehoue 2009). and cluster management in Europe, and transition
countries such as China, India, and Thailand. Since
Besides clusters dynamic, it is crucial for small scale this study has been narrowed through technological,
industry (SSI) to account for energy efficiency as the economical, and sociological involvement in cluster
main improving factor of cluster’s barriers (Nagesha dynamic regardless of location, it is our courage to
and Balachandra 2006). They referred six important leverage global-market economy with indigenous-
factors for effectively handling with barriers to transition economy. To drastically simulate such
energy conservation; (1) technical – lack of feedback effect on energy consumption or demand
availability, reliability and knowledge of efficient forecasting, some economical endogenous such as
technology, (2) institutional – lack of right income, energy price must be balancing with energy
technology input, financial support and proper requirement in causal loop as given government
program, (3) financial – lack of explicit financial policy (Asafu-Adjaye 2000).
mechanisms, (4) managerial – lack of training,
improper managing, (5) pricing – lack of rational Expected output
pricing of electricity and other fuels and (6) This model conceptually shows result factors by
information – lack of appropriate information, reducing in energy intensity from small-scale
information diffusion problems. They revealed that industries that is normally correlated with the effects
financial initiatives and behavior of managerial of innovative technology and knowledge spillovers
entrepreneur are the barriers to improvement of initiated by government policy’s introduction of
energy efficiency. Though these barriers’ priority are necessary energy requirement into cluster dynamic
irrespective to others dissimilarities between which are not fully as endogenous. This indicates
industrial clusters, financial inflow is the most some relationships between rising social capital in
important to be addressed for energy-efficiency new SSI and reducing environmental impact with
improvement in cluster development. Moreover, lower energy intensity. Higher social capital is likely
related study of SSI’s barrier in transition countries to demand more energy efficiency and somehow
(Thiruchelvam, Kumar et al. 2003) found many derives energy requirement. We show conceptual
policy options but all interventions require diagram that reveals the impact of government policy
coordination among government bodies and incentive in correlated scenarios with dynamic factors of
policy of energy conservation program. energy requirement in causal loop explicitly.

3. METHODOLOGY
This paper takes based empirical evidences on the
relationship between economic growth and energy
consumption (Hondroyiannis, Lolos et al. 2002),
however, with the absence between cluster growth
and energy demand. For this simulation, non-linear
system dynamic modeling, particular set of energy
factors have been used; energy consumption, energy
demand, energy supply, energy intensity, energy
efficiency, energy conservation, energy requirement,
energy price, and energy import to leverage cluster Figure 1: Linkage tree from government policy through
growth as balancing feedback and modeling the cluster growth
effect of particular government policies on the cluster
dynamic.
Hypothesis 2
For comparison, most studies are found on static and Is higher energy requirement really effective to the
open-looped effect of causality of corresponding inflow of social capital or foreign investment?
policies to the cluster formation without including the
feedback effect from the cluster to those economic This is to analyze that our government policy to
factors in simulation (Teekasap 2009). To assess business attraction from hypothesis 1 has explicitly
such cluster dynamic and its theoretical policy promoted the energy factors such as energy
(Brown 2000), cluster-based economic evolution are efficiency in new industrial SME as small-scale
involving the parameters of capital resources - FDI, cluster. Since government policy is one endogenous,
employment ratio, income, market demand – private of the main factors in cluster dynamic,
consumption, and production – export, GDP, (Thiruchelvam, Kumar et al. 2003) supporting causal
economic efficiency benefit are presented to model loop of energy requirement illustrated in Figure 3.
various scenarios for different policies applied to
develop cluster growth. Explicitly, our most
influential empirical study on causality between
cluster dynamic and FDI to drive economic growth
(Yehoue 2009), finding such government policy in
balancing domestic capital has been leveraged with
an initial delay of foreign investment as a starting
business attraction in cluster dynamic.
Hypothesis concerning in causal loop Figure 2: Linkage tree from the set of energy
It is necessary to understand all supporting factors in requirements to economic growth
our main causal loop and their linkages of
relationship among the main key factors as such
cluster growth, economic growth, and energy
demand. We will examine each of these loops in
system dynamic modeling based on 2 correlated
hypotheses.
Hypothesis 1
The supporting government policy in business
attraction to cluster dynamic is essentially driving
energy efficiency
This hypothesis derived from observation in cluster
dynamic linkages in Figure 2. In order to begin our
simulation, previous clusters’ empirical literatures
have shown causality between cluster growth and
government policy (Teekasap 2009), so we observe
essential analysis on this hypothesis 1.

4. CONCEPTUAL FRAMEWORK:
CAUSAL LOOP DIAGRAM
Figure 5 Reinforcing loop between R&D institution,
technology spillovers, new industrial SME and cluster
dynamic
Next correlated loop of reinforcement in Figure 6 is
Figure 3: Casual loop diagram showing relationship derived from factor of endogenous cluster dynamic in
between cluster growth, economic growth and each first R-loop of cluster growth. As cluster becomes
energy factors more successful, it promotes collaboration in
associate with R&D institution for particular
Apparently, In Figure 4 causal loop diagram shows 2 innovation. This also initiates benefit back to cluster
main cause-effect loops as follows; reinforcing loop dynamic in term of technology spillovers to new
comprised of all plus signs (+) in supporting linkage comer as innovative SME.
stated by R-loop, balancing loop comprised of 1-2
minus signs (-) in opposite feedback stated by B-
loop.
Figure 4: Reinforcing loop between cluster
dynamic, employment, and government policy
This Figure 5 initiated from rectangular box of Figure 6: Causal loop of energy factors effecting
cluster growth stock as the main loop in which governement policy
provides 2 substantial reinforcing loops of R-loop.
We interpret that positive cluster dynamic is
reinforcing as the main input for cluster growth by
which attracts output as employment as in Figure 5. The next major causality of balancing loops shown in
The higher employment ratio, the more cluster Figure 7 will be nested loop among energy factors;
incentives gained by government policy. the change in energy requirement will cause
bidirectional effects to other energy conservation,
energy consumption, energy price, energy import,
energy demand, energy supply, energy intensity, and
energy efficiency. We believe that this latter causal
loop effect will drive government policy to stimulate
a delay loop of one another energy requirement.

5. Figure 8 shows important balancing loop between efficiency; it would escalate economy transition to
economic factors based on economic growth and achieve higher productivity and therefore greater
energy consumption as crucial feedback effects to economic cost-efficiency.
government policy. If we add a scenario in which
government policy focuses directly in energy CONCLUSION
requirement, it show that energy conservation will be There is positive relationship reinforcing cluster
affecting energy consumption directly through dynamic with higher energy consumption before a
energy conservation and indirectly effected through delay of monitoring by government policy in energy
energy import that will deduct GDP to impede requirement. This signals a positive role that energy
economic growth. efficiency could enhance the balancing feedback to
the economic efficiency. Higher positively the
energy efficiency in form of lower energy intensity,
lower negatively energy conservation in form of
strict energy requirement, this calls for more
attention from cluster policy makers to improve the
energy efficiency of energy-intensity in small-scale
industrial SME as a means of inducing more
collaborations from R&D institution and government
policy.
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