Cluster-based industrial development in contemporary developing countries and modern Japanese economic history

• We compare development of industrial clusters in developing economies and prewar Japan.
• In both cases innovations took place only in later stage of development process.
• In the Japanese cases trade association and local government help internalize the externalities.
• The internalization of externalities in developing countries needs to be analyzed carefully.

What are the similarities and dissimilarities in the pattern of cluster development between contemporary developing countries and modern Japanese economic history? This study attempts to examine the relevance of the Sonobe–Otsuka model, which is designed to explain the long-term process of cluster-based development in developing countries, for understanding the development process of silk-weaving clusters in prewar Japan. We discovered critical roles played by trade associations and local governments in internalizing the agglomeration economies in the development of the silk-weaving industry in Japan. We argue that further efforts are needed to explore the importance of trade associations and local governments in the development of industrial clusters in developing countries.