R&D Clusters and Policy

Abstract

As regards the realisation of a knowledge-based economy, R&D clusters are seen at the centre of supranational, national and local policies throughout Europe. This paper aims at reviewing this kind of policy intervention.

In neoclassical theory technological knowledge is a pure public good defined as an externality not as a result of intentional investment and profit seeking by entrepreneurs, but like "manna from the heaven." The fact that firms grow by generating knowledge cannot be explained within the neoclassical context. The more recent endogenous growth theory considers knowledge as a good with characteristics of both a private and a public good. In fact, it is seen as a club good. In contrast to a pure public good, knowledge is partly excludable - at least over a time span - therefore the firm which has generated the knowledge can have a temporary monopoly profit (thus providing an incentive to produce that knowledge). Within an R&D cluster, firms co-operate vertically and/or horizontally. In doing that, knowlegde needs to be provided and exchanged, thus, knowledge is not only used as a club good by all firms in the cluster, it is the major fuel for growth. Within the close upstream and downstream links the knowledge generated in the cluster is shared and further developed by the firms. This mechanism only works if (i) there is an equilibrium of exchange within the cluster (no free-riding on knowledge) and (ii) the knowledge is contained within the cluster (no firm outside the cluster can reap the benefit of that knowledge). The goal of policy can only be to support and stabilise that equilibrium. It would however be an illusion to believe that these inter-firm exchange mechanisms will become fully transparent to policy makers. Hence, policy intervention can only be based on rough assumptions regarding individual clusters. The fact that policy makers never exactly know the patterns of the exchange of club goods implies, that they consequently do not know whether all necessary conditions to achieve the desired optimum (i.e. a successful R&D cluster) can be realised. In the worst case policy could trigger internal knowledge to become public (in the neoclassical view) and there is no further incentive for knowledge generation within the cluster.

Keywords: Research & Development, Innovation Policy, Growth Theory, Collective Goods

JEL Classification: R11