This paper examines the mechanisms that drove regional clustering of the molds industry in Portugal. This industry is strongly agglomerated in Marinha and Oliveira, outside the main metropolitan centers. Two alternative theories aiming to explain the clustering process are considered: agglomeration theory and organizational reproduction theory.

Agglomeration theory (Porter 1991, Krugman 1992) claims that once firms in an industry begin to congregate to a specific region, labor pooling, technological spillovers, and a rich supplier industry stimulate further growth and entry. The evidence compiled about clusters is broadly consistent with the importance of such agglomeration economies (Baptista and Swann 1998; Rosenthal and Strange 2004). Organizational reproduction theory (Klepper 2007, 2008) claims that a firm’s pre entry experience critically shapes its performance and its spinoff creation rate. Subsequently, better firms generate more spinoffs that become superior performers. Since entrepreneurs tend not to venture far from their geographic origins (Figueiredo, et al. 2002), this dynamic process leads to a buildup of superior firms in a region. This process does not require the existence of any benefits or externalities associated with agglomeration.