Purpose - This study studies the conditions for building an innovation cluster for the expansion of the value chain of local industries. Design/Methodology/Approach - Based on the spatial model of Krugman & Baldwin(2005), the analytical framework of this study is set up. Findings - The agglomeration of human capital strengthens the value chain by increasing both the forward and backward linkage effects. In addition, it is shown that the effect of human capital on the value chain strengthens as the preference for innovative products increases. A key condition for cluster formation holds when the transaction cost between regions falls below a certain level, and the core-periphery equilibrium is stable. When transaction costs between regions are eliminated, the core-periphery equilibrium becomes unstable, and a symmetrical equilibrium that prevents clusters from being agglomerated into one region becomes possible. Research Implications - First, there is a policy to keep transaction costs at a certain level. For example, a policy to increase the proportion of local university graduates can be considered for public enterprises or public institutions relocating to the provinces. The second is a policy that completely lowers the level of transaction costs. In this case, the act of being located in the capital region or located in the region itself becomes indifferent. Since there are no transaction costs, the firm