Chapter

diamond. Many government departments and agencies impinge on competitiveness, as do government entities at the provincial, state, and city levels.The question is not whether government has a role, but what that role should be and how to coordinate policies across parts of government. Many countries have sought to limit the inappropriate roles of government while ignoring its positive roles. Government must set the right rules and incentives and make the public investments needed for a productive economy. National endowments such as natural resources play a declining role in competitiveness as the resource intensity of the economy falls and as technology substitutes for resources or opens up new resource locations.The real prices of most resources or resource-intensive goods have been falling over the decades. It is the productivity with which natural resources can be utilized, not the resources themselves, that normally have the strongest influence on prosperity. Abundant natural resources also carry a risk. In countries where natural resources are abundant or dominate economic activity, forces are set in motion that limit the development of policies, skills, and attitudes enhancing competitiveness. Exploiting and redistributing resource spoils can become the dominant orientation rather than enhancing productivity.We explore the relationship

between natural resource endowments and competitiveness in a later section.
Clusters and economic development

An improving business environment gives rise to the formation of clusters. Clusters are geographically proximate groups of interconnected companies, suppliers, service providers, and associated institutions in a particular field, linked by commonalities and complementarities. Clusters, such as software in India or high-performance cars in
Germany, are often concentrated in a particular region within a larger nation, and sometimes in a single town.
Clusters affect competitiveness in