KNOWLEDGE SPILLOVERS

Theories on knowledge Spillovers and Growth

Theories on Knowledge Spillovers and Growth

Introduction

Broadly speaking, externalities (also known as “Spillovers” or “neighbourhood effects”) refer to “uncompensated welfare impacts,” that is, the actions and events of one party or person that affect the welfare (positively or negatively) of another without some remuneration. These arise when a decision maker does not reap all the rewards or bear all the costs of his or her actions and can occur in both the production and the consumption of goods and services (Cornes & Sandler, 1996, Pp. 3-34).

By Knowledge Spillovers, economic geographers commonly refer to technical, scientific, or organizational knowledge that, once discovered, obviously comes to the attention of other individuals due to its non-rival and (partially) non-excludable nature. Non-rivalness implies that additional users bear no extra cost and do not prevent others from possessing and using the knowledge. Non-excludability indicates that it is also impossible, or at least very difficult, to prevent others from gaining the knowledge, whether they have contributed to its production or not. The term Spillovers intended to highlight the difficulty of controlling knowledge and preventing its unintentional dissemination in the economy. Now regarded as the central factor for economic growth, knowledge Spillovers and their underlying circumstances have received increased scholarly attention (Breschi & Lissoni, 2001, Pp. 975-1005).

Discussion

A common assumption in the geography of innovation literature is that knowledge often takes the form of know-how or tacit knowledge, which is hard to convey by means other than repeated face-to-face interaction. When Spillovers are thus locally bounded, firms tend to locate near their sources, such as universities, research and development (R&D) intensive firms, or skilled labour. Many empirical studies have, therefore, examined the impact of universities or labour mobility on regional growth, using various indicators (Glaeser, Kallal, Scheinkman & Shleifer, 1992, Pp. 1126-1152). Patents and patent citations are now most commonly used in this respect, and in the case of scientific knowledge, various biblio-metric methods are generating increased interest (Jaffe, Trajtenberg & Henderson, 1993, Pp. 577-598).

The empirical model of Glaeser et al. (1992) considers the growth rate of employment in the six largest industries in 170 of the largest cities as a function of variables that measure the three potential impacts of knowledge Spillovers, controlling for regional and natural characteristics that might affect local growth. Their findings show that growth is faster in cities where local industry competition is greater and where industry diversity is greater (Glaeser, 2004, Pp. 70-79).

Rosenthal and Strange (2001) consider the three sources of localization economies to determine the level of geography at which the sources are important in explaining the concentration of industry employment. The authors hypothesize that the impact of the agglomeration advantages may be influenced by the spatial concentration of industry activity. Some sources of agglomeration may be more important at close proximity, while others may be important over a larger area. They regress an index of spatial concentration for an industry on variables that measure input sharing, labour market pooling, and knowledge Spillovers, controlling for transport cost ...