This paper analyzes the most important theoretical approaches to SME cluster development and their influence on policy making. Its context is the author's five year personal experience of SME clusters in Nicaragua. The paper discusses the strengths and limitations of cluster development approaches, and integrates the findings into a comprehensive framework for analysis and policy development. The author hopes that his conclusions can respond to the difficulties encountered by international and local development agencies in promoting significant growth within local production systems.
In particular, the paper responds to the apparent failure to involve the "real society that exists behind the market" in the development process of SME clusters. Taking the social environment into account would increase local people's reactivity to economic policies and instruments and make them more effective.