Abstract Based on an analysis of Shaoxing textile cluster , this article explores the role of the organizational innovation of industrial clusters in gaininga dynamiccomparative advantage for the developing countries . It suggests that the factor prices and the transaction costs of individual firms are reduced as a result of the organizational innovation at the cluster level . This is shown empirically in the case of China Textile City , a local industrial cluster , where the operational performance and the rate of capital accumulation have been significantly improved . During the evolutionary process , the capital endowment of the industrial cluster changes from relatively scarce to relatively abundant .The price of the capital factor falls correspondingly .Consequently , the enterprises tend to use more of the capital factor in their economic activities . A substantial increase in the capital intensity of commodities would occur , enabling developing countries such as China to acquire the dynamic comparative advantage in the global competition .
