We analyze impacts of a cluster policy aiming to increase firm growth through maximizing agglomeration benefits and improving production facilities. Firms located in a natural cluster were incentivized to move to a new government-created cluster. A limited number of firms were allowed to move, and many similar firms, also eager to move but could not, formed our comparison group. Controlling for selection, and employing difference-in-difference estimation, we find large negative effects on job-creation and firm performance. The policy hampered the firms' business and knowledge networks, reduced trust among firms, increased transaction costs and curbing market information.

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