Spillovers, Absorptive Capacity and Agglomeration

39 Pages Posted: 14 Oct 2011

See all articles by Sergey Lychagin

Sergey Lychagin

Central European University (CEU)

Date Written: November 28, 2010


I study knowledge spillovers in an industry where firms are mobile and heterogeneous in their ability to adopt outside knowledge (absorptive capacity). I develop a static model of industry agglomeration where, in equilibrium, the force of attraction induced by spillovers is counteracted by the force of repulsion created by local competition. The model is applied to a sample of the US software firms. I estimate the structural parameters of the model and obtain the following results: (a) The data are consistent with highly localized knowledge spillovers; (b) The attraction force induced by spillovers creates a significant sorting pattern placing firms with higher absorptive capacity in more agglomerated counties; (c) Ignoring firm heterogeneity in absorptive capacity leads to substantially biased estimates of gains from spillovers in policy experiments.

Keywords: Knowledge spillovers, absorptive capacity, location choice

JEL Classification: R30, D24

Suggested Citation

Lychagin, Sergey, Spillovers, Absorptive Capacity and Agglomeration (November 28, 2010). Available at SSRN: https://ssrn.com/abstract=1943671 or http://dx.doi.org/10.2139/ssrn.1943671

Sergey Lychagin (Contact Author)

Central European University (CEU) ( email )

Nador utca 9
Budapest, H-1051

HOME PAGE: http://www.personal.ceu.hu/staff/Sergey_Lychagin/

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