Labour Pooling in R&D Intensive Industries
31 Pages Posted: 29 Dec 2005
Date Written: October 2005
We investigate firms' incentives to locate in the same region to gain access to a large pool of skilled labour. Firms engage in risky R&D activities and thus create stochastic product and implied labour demand. Agglomeration in a cluster is more likely in situations where the innovation step is large and the probability for a firm to be the only innovator is high. When firms cluster, they tend to invest more and take more risk in R&D compared to spatially dispersed firms. Agglomeration is welfare-maximizing, because expected labour productivity is higher and firms choose a more efficient, technically diversified portfolio of R&D projects at the industry level.
Keywords: Agglomeration, labour pooling, R&D
JEL Classification: L13, O32, R12
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