Academic journal article Geographical Analysis

Knowledge Spillovers and Total Factor Productivity: Evidence Using a Spatial Panel Data Model

Academic journal article Geographical Analysis

Knowledge Spillovers and Total Factor Productivity: Evidence Using a Spatial Panel Data Model

Article excerpt

This article investigates the impact of knowledge capital stocks on total factor productivity (TFP) through the lens of the knowledge capital model proposed by Griliches (1979), augmented with a spatially discounted cross-region knowledge spillover pool variable. The objective is to shift attention from firms and industries to regions and to estimate the impact of cross-region knowledge spillovers on TFP in Europe. the dependent variable is the region- level TFP, measured in terms of the superlative TFP index suggested by Caves, Christensen, and Diewert (1982). This index describes bow efficiently each region transforms physical capital and labor into output. The explanatory variables are internal and out-of-region stocks of knowledge, the latter capturing the contribution of cross- region knowledge spillovers. We construct patent stocks to proxy annual regional knowledge capital stocks for N = 203 regions during 1997-2002. In estimating the effects, we implement a spatial panel data model that controls for spatial autocorrelation as well as individual heterogeneity across regions. The findings provide a fairly remarkable confirmation of the role of knowledge capital contributing to productivity differences among regions and add an important spatial dimension to discussions in the literature by showing that productivity effects of knowledge spillovers increase with geographic proximity.

Introduction

Many economic studies, such as the pioneering study by Solow (1957), have demonstrated the central role played by technological progress in economic growth. These studies based on a growth-accounting approach do not attempt to measure technological progress directly, but treat it as the residual factor accounting for growth. According to the standard interpretation, this residual represents disembodied technological progress, usually referred to as total factor productivity (TFP), defined as output per unit labor and physical capital combined.

This article lies in the research tradition that investigates the impact of knowledge capital stocks on TFP through the lens of the knowledge capital model proposed by Griliches (1979) to augment the production function with the stock of knowledge. (1) The knowledge capital model has become the cornerstone of the productivity literature for more than 25 years and has been applied in dozens of empirical studies on firm-level productivity and extended to the more aggregated industry and country levels {see Griliches 1995 for a survey).

This model has evolved in many directions. Jaffe (1986) initialed ways of accounting for the appropriability of external flows of knowledge or knowledge spillovers. Knowledge spillovers may be defined to denote the benefits of knowledge to firms, industries, or regions not responsible for the original investment in the creation of this knowledge. It is important to distinguish between two distinct types of knowledge spillovers: spillovers embodied in traded capital or intermediate goods and services (so-called pecuniary externalities) (2) and spillovers of the disembodied kind (nonpecuniary externalities). The focus of this article is on spillovers of the second type. Such spillovers arise because the production of knowledge has public good characteristics limiting the ability of firms to stop other firms or individuals exploring it.

The last few years have seen the development of a significant body of research that includes measures of external knowledge capital in an attempt to estimate the productivity effects of knowledge spillovers across firms (see, e.g., Mairesse and Sassenou 1991 for a survey; Los and Verspagen 2000 for a survey), across industries (see, e.g., Scherer 1993; Branstelter 2001) or across countries (see, e.g., Park 1995). (3) Even though the subnational region is increasingly regarded as an important level of economic policy, there have been very few attempts so far to investigate the impact of knowledge capital stocks on region-level TFP. …

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