The Competitiveness Initiative (TCI) project in Sri Lanka began organizing industry clusters and developing industry strategies at the end of 1999. Since then, USAID projects in many other countries have also pursued the cluster concept to promote competitiveness and encourage private sector development.

Despite its popularity, this approach remains controversial. Even today, little evidence exists on the economic impact of cluster initiatives as an effective form of aid intervention to promote economic development.

The design of TCI in Sri Lanka and its performance indicators focused on process criteria. Nonetheless, USAID is now rightly asking about the economic impact of the cluster initiatives. Have they delivered substantial benefits for the economy of Sri Lanka? Are the benefits sufficient to justify using foreign assistance resources for this purpose? Are particular cluster activities especially successful, suggesting lessons to improve the design of competitiveness projects

In this paper, Bruce Bolnick summarizes the main findings of his recent report to USAID/Colombo, which sought to answer these questions by assessing the prospective economic impact of competitiveness initiatives undertaken by eight cluster groups that have been organized and supported by TCI.