Theoretical perspectives on localized knowledge spillovers and agglomeration

摘要

Empirical evidence shows that innovation is geographically concentrated, but whether localized knowledge spillovers provide a logically valid explanation for this phenomenon is unclear. I show that in the context of cost-reducing R&D spillovers between Cournot oligopolists the explanation is plausible: localized knowledge spillovers encourage agglomeration, but whether this leads to higher levels of effective R&D depends on the extent of the spillovers, the number of firms, and the industry's R&D efficiency. Contrary to the earlier theoretical work, this illustrates a context, in which the localized knowledge spillover explanation is actualized, and provides necessary conditions, which can be empirically tested.