In describing the structure of a regional economy, it is helpful to differentiate between activities that determine the rate of growth of the overall economy and those that are subsidiary to them. It is commonplace to refer to the former activities as the "drivers," "engines," or "pillars" of a regional economy. Whatever the term, this type of designation normally hinges on whether or not the good or service in question is sold in markets beyond the borders of the region - hence the distinction between "traded" and "local" sectors. The central idea is that such goods or services draw income into the region from outside, creating a propulsive force that ripples through the rest of the local economy.
A closely related idea is the concept of the cluster, developed by Michael Porter and now commonly applied in the analysis of regional and national economies. Porter offers the following definition:
A cluster is a geographically proximate group of interconnected companies and associated institutions in a particular field, linked by commonalities and complementarities. ... Clusters take varying forms depending on their depth and sophistication, but most include end-product or service companies; suppliers of specialized inputs, components, machinery, and services; financial institutions; and firms in related industries. Clusters also often include firms in downstream industries (i.e., channels or customers) ... Clusters also often involve a number of institutions, governmental and otherwise, that provide specialized training, education, information, research, and technical support ... 3
The recent work of the Institute for Competitiveness and Prosperity combines these ideas to produce an analysis of the Ontario economy based on the concepts of "traded clusters" and "local clusters." Traded clusters consist of industries that sell their output primarily to non-local - that is, interregional and international - markets. Because they do not depend on local demand, "they are concentrated in specific regions where they choose to locate production, due to the competitive advantages afforded by these locations. Employment levels in traded industries thus vary greatly by region, and have no clear link to regional population levels."4
In contrast, local clusters "provide goods and services almost exclusively for the area in which they are located," which means that they tend to be present in all regions, generally in proportion to the regional population. Classic examples include retailers and public services such as primary and secondary education. While this means that the most highly populated regions have large employment concentrations of such activities, it does not mean that these regions have any kind of competitive advantage over other regions in supporting this kind of activity.