On specifying heterogeneity in knowledge production functions

Within the Geography of Innovation literature, the Knowledge Production Function approach has become a reference framework to investigate the presence of localized knowledge spillovers and spatial econometric tools have been applied to study interregional spillovers. A linear specification for the KPF is assumed linking patents to R&D expenditure. This approach however suffers of different drawbacks. First patent applications are count data in nature. Patents per inhabitants may produce an unrealistic picture of the spatial distribution of innovative activities. Secondly, spatial heterogeneity is not usually observed, producing both omitted variables bias and spatial correlation in the error structure. Third, a positive R&D-patents linkage may arise as a spurious correlation if market size is not observed, causing R&D to be endogenous. This paper uses a regional cross section model to study the spatial distribution of high tech patents across 232 European regions in the period 2005/2006 to address these issues. Two main processes drive technological change in the model: research activities and knowledge generated outside firms and in a second moment embedded through either formal or informal acquisition. Among the different knowledge sources we particularly focus on the role of firms working in Knowledge Intensive Business Services and on that of universities. In developing the empirical model we take into account that a) patents are count data; b) the exclusion of market size will cause biased and inconsistent model parameters estimates; c) estimates of interregional spillovers may be biased by the omission of heterogeneity in the model specification. Empirical results indicate that, as expected, a count data distribution best fits the data, producing less spatially autocorrelated residuals. Regional innovative activity is explained by both investments in research and localization of KIBS, but only the first generates positive interregional externalities. Scientific universities do not directly affect the production of new knowledge. However, different knowledge production processes characterize regions with and without scientific universities, with R&D driving innovation in the sooner and KIBS in the latter. Finally, most of what are assumed to be interregional spillovers reveal to be, at a more careful inquiry, effect due to unaccounted spatial heterogeneity in regional innovation.

ICT loves agglomeration The urban impacts of ICT in the Netherlands

Information and Communication Technology (ICT) has had an undeniable impact on our society. Some people argue that technology has projected us onto a new wave of social and cultural change. Nevertheless, despite the growth of technology and the social significance of its applications, we have only a poor grasp of its actual impact on the use of physical space. The key question addressed in this paper is therefore: how will ICT influence the spatial-economic patterns of business activities in the Netherlands? In offering answers to this question, the paper develops a conceptual framework that distinguishes two roles of ICT in spatial-economic development: that of a ‘motor’, enhancing productivity and encourages the development of economic sectors, and that of an ‘enabler’ (of e-work, e-commerce and e-business), which may lead households and firms to adopt a different attitude to space requirements. The paper is based on a thorough survey of the current literature on the subject, the results of a recent survey of ICT’s impact on society, and original empirical research into specific factors such as ICT companies’ location preferences and the willingness of knowledge workers to commute. The paper presents an assessment of the usefulness of these concepts in terms of the Dutch situation, both today and in the future. We conclude that Information and Communication Technology has not yet had a marked visible impact on the use of space. To the contrary, despite predictions neither Dutch companies (particularly those in the ICT sector) nor knowledge workers display any unusual degree of mobility at the local or regional s 2perfect substitute for ‘traditional’ behavioural patterns. Nevertheless, there are clear indications that the ‘spatial order’ of the Netherlands is likely to change. Although it is likely that ICT will consolidate underlying spatial patterns, on the regional aggregate changes are occurring within those patterns. While (inner) cities have traditionally been the breeding ground for new ICT companies, this function has now largely been taken over by the outlying city regions, in which multiple clusters of economic activity are emerging: a process of ‘splintering urbanism’. However, despite this regionalized pattern of deconcentration, the traditional city centres continue to fulfil a number of essential functions. These centres remain the meeting places, and the shopping and entertainment centres for businesses and households (the ‘Consumer City’). In the processes of deconcentration and multimodality, ICT should be seen to play an important facilitating and strengthening role. cale. ICT does not function as a 2perfect substitute for ‘traditional’ behavioural patterns. Nevertheless, there are clear indications that the ‘spatial order’ of the Netherlands is likely to change. Although it is likely that ICT will consolidate underlying spatial patterns, on the regional aggregate changes are occurring within those patterns. While (inner) cities have traditionally been the breeding ground for new ICT companies, this function has now largely been taken over by the outlying city regions, in which multiple clusters of economic activity are emerging: a process of ‘splintering urbanism’. However, despite this regionalized pattern of deconcentration, the traditional city centres continue to fulfil a number of essential functions. These centres remain the meeting places, and the shopping and entertainment centres for businesses and households (the ‘Consumer City’). In the processes of deconcentration and multimodality, ICT should be seen to play an important facilitating and strengthening role.

Agglomeration economies and the location of new information and communication technology (ICT) firms in the Netherlands

In 2000, the world wide, rapid employment growth in the ICT-sector came to an end. Knowledge-intensive ICT-firms and -sectors in the Netherlands confirmed to this negative development trend as well. The life-cycle of the ICT-sector appears to reach a new phase of development, dominated by saturation of demand and enforced competition. This might affect the localised growth in the ICT-sector as well. According to evolutionary interpretations of agglomeration theory, one expects that new ICT firms start up in knowledge intensive, urban setting in order to gain from localised knowledge spillovers. The recent empirical literature is not unambiguous clear upon the role of intra- and intersectoral (specialisation or sectoral diversity based) agglomeration circumstances that determine firm formation, growth and survival patterns. In later stages of sectoral development, three kinds of spatial developments are expected from the geographical growth literature: (1) a cummulative causation based process of growth within the preliminary urban settings; (2) a dispersion process towards suburban and adjacent rural regions based on physical network and proximity conceptualisations, (3) spatial growth transmittance and firm dispersion based on functional network spatial relationships which are predominantly non-contiguous in character. For the latter category of spatial economic dynamics, the degree of urbanisation, accessibility, regional labour market- and national zoning spatial regimes are assumed to be leading spatial conceptualisations. A favourable macro-economic growth perspective, as present in the Netherlands during our research period, is assumed to speed up (and condition) spatial economic dispersal patterns. To test these spatial growth transmittance and firm dispersal hypotheses we analyse the components of growth (new firm formation, survival and growth in incumbent firms) of a large dataset of in total 36,000 ICT firms in the Netherlands for the period 1996-2000. The papers empirically distinguishes in-situ urban growth, contiguous relations in growth patterns (starting on an initially low, intra-urban spatial scale) and heterogeneous (non-contiguous) spatial research designs. Conclusions are drawn in relation to the recent agglomeration and economic growth literature.

The knowledge economy and Dutch cities

How can cities and metropolitan regions remain prosperous and competitive in a rapidly changing economy? In our paper we argue that ‘the knowledge economy’ offers perspectives for growth and added value creation. The paper clarifies what elements the knowledge economy actually consists of, how it can be measured in statistical indicators, in which regions and cities in the Netherlands the knowledge economy has its most significant imprints and what statistical association there is between these regions and cities and relatively good economic performance of firms. We test two contrasting hypotheses often heard in the international literature. The current embedding of knowledge externalities in endogenous economic growth theory have led to important contributions that stress the urban character knowledge transmission in particular. The reasoning is that if knowledge spillovers and –externalities are important to growth and innovation, they should be more easily identified in cities where many people are concentrated into a relatively small geographic space so that knowledge can be transmitted between them more easily. Much recent research indeed finds a limited extent of spatial spillovers and a large degree of local clustering. Alternatively, a large body of literature on Western spatial configurations of innovation and high-technology firms predominantly stresses the supposed ‘urban field’ character of firm performance: location and agglomeration aspects do not seem to have a systematic impact on the distribution of innovative and growth inducing activities over space. We test the urban hypothesis using spatial econometric modeling techniques. On the one hand, the fact that a distance squared distance weight matrix in spatial lag estimations fits the performance data best in relation to knowledge economy factors indicates that spatial relations are limited and urban fixed. On the other hand, the significance of several spatial regimes though (especially those of the Randstad core region, the so-called intermediate zone and medium-sized cities) indicates that the urban structure related to the knowledge economy and economic performance is not straightforward hierarchical (largest cities are not the relatively most attached to the knowledge economy). Both hypotheses (urban and non-urban) are too extreme to fit the Dutch situation. We also conclude that the locational attributes of the factor ‘knowledge workers’ are much more significantly related to economic growth and added value (in practically all specifications over regimes and spatial lag estimations) than the R&D-based innovation input factor. This questions Dutch policy initiatives that mainly focus on R&D as stimulator of the ‘knowledge economy’.

Labour migration in Europe and the New Economic Geography

This paper addresses consequences of increased labour migration in Europe due to productivity effects in a core-periphery model. Traditional trade and growth models predict an overall beneficial impact of the accession of the current candidate states to the European Union. However, models incorporating imperfect competition warn that peripheral countries may realise only a small portion of this beneficial impact of the accession. In this chapter we go a step further: On the domestic level the countries accession may have negative effects while on the nationals level the effect will be positive. An empirical indication that benefits of accession may be low is the marginal benefits during the early phases of EU membership for Greece and Ireland and the Neue Länder of Germany. The following main questions are addressed in this chapter. What is the consequence of increased migration within the European Union due to deregulation in the context of the creation of a common market, and what will be the consequence of the extension of the European union with central and eastern European countries?

Agglomeration economies and entrepreneurship: testing for spatial externalities in the Dutch ICT industry

Although there is growing evidence on the role of agglomeration economies in the formation and growth of firms, both the concepts of agglomeration economies and entrepreneurship tend to be ambiguously defined and measured in the literature. In this study, we aim to improve the conceptualisations and measures of agglomeration economies and entrepreneurship. Indicators of agglomeration economies are analysed in clearly defined urban regimes on three spatial scales in the Netherlands – national zoning, labour market connectedness, and urban size. This is done in order to uncover their effect on two entrepreneurial phases in the firm life cycle - new firm formation and the growth of incumbent firms in the relatively new ICT industry in the Netherlands. In comparison with new firm formation, the growth of incumbent firms is not so much related to spatial clustering of the ICT industry and other localized sources of knowledge economies associated with urban density. Instead, knowledge as an input for growth of incumbent firms is associated with more endogenous (firm internal) learning aspects, reflected by a significant correlate with R&D-investments. Also the effect of local ICT firm competition differs between the two types of firms: a positive effect on new firm formation, but a negative effect on incumbent firm growth. In general, agglomeration economies have stronger effects on the formation of ICT firms than on the growth of ICT firms.agglomeration economics, spatial externalities, entrepreneurship, location, urban regimes, ICT industry

Innovation, spillovers, and university-industry collaboration: An extended knowledge production function approach

This paper analyses the effect of knowledge spillovers from academic research on regional innovation. Spillovers are localized to the extent that the underlying mechanisms are geographically bounded. However, university-industry collaboration - as one of the carriers of knowledge spillovers - is not limited to the regional scale. Consequently, we expect spillovers to take place over longer distances. The effect of university-industry collaboration networks on knowledge spillovers is modelled using an extended knowledge production function framework applied to regions in the Netherlands. We find that the impact of academic research on regional innovation is mediated not only by geographical proximity but also by social networks stemming from collaboration networks.knowledge production function, knowledge spillovers, university-industry collaboration, innovation, social networks

The Geographical and Institutional Proximity of Scientific Collaboration Networks

The geography of innovation has established itself as a central subject in economic geography. Geographical proximity to firms and organizations like universities is supposed to have a positive effect on a firms’ innovative performance. One of the reasons causing these positive agglomeration effects is the fact that collaboration is eased by geographical proximity. Although the role of proximity for collaboration is a well researched theme with regard to innovation, less is known about the role of proximity in scientific collaboration and how this affects the probability and nature of networking among research institutions. This is surprising given the fact that collaboration in science has become a central policy issue. In this paper we set out a number of theoretical considerations about the role of geography for innovation and see whether these apply for science as well. The empirical part will focus on the geography of collaboration in scientific knowledge production, testing the hypothesis that collaboration between different kinds of organizations is geographically more localized than collaboration between the same kinds of organizations due to institutional or organizational proximity. Besides this we will analyze the importance of spatial proximity for various forms of collaboration (such as university-university and university-firm collaboration) using the concept of the gravity model. Finally we will look at the spatial structure of these collaboration networks using insights from social network methodology. Based on co-publications, central nodes of collaborative interaction and network structures are analysed over time. On the network-level we conclude on differences in the fields of life- and physical sciences and on differences on the type of relations according to university-firm, university-university and university-governmental institution linkages. On the regional level we conclude on the centrality and spatial extent of scientific collaboration hubs over time

Variety, Employment and Regional Development in The Netherlands

We explain employment growth in 40 Dutch regions for the period 1996-2002. Our main interest is to test the effect of sectoral variety using data on five-digit sector employment, while controlling for traditional variables. Our measure of variety is entropy, as this measure allows for decomposition of variety into related and unrelated variety. We distinguish between related and unrelated variety effects. Related variety is associated with Jacobs externalities (spillovers), while unrelated variety tests portfolio advantages. We also take into account the effect of specialisation on employment growth. The results suggest that only related variety significantly contributes to employment growth. The popular dichotomy between variety and specialisation may thus be misleading. Our study underlines the more recent concept of “diversified specialisations” as central driver of growth.