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Part I
Knowledge spillovers in multiple contexts
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2 Knowledge spillovers and economic performance of firms located in depressed areas
Does geographical proximity matter?
Liliana Araújo, Sandra Tavares Silva and Aurora A.C. Teixeira
Introduction
Knowledge is defined by several authors, in line with Polanyi (1958), as a learning process that involves cognitive structures and the assimilation of different types of information. A new concept emerges from the diffusion of knowledge: knowledge spillovers, which correspond to a transmission mechanism by which firms benefit from the knowledge produced by other organizations (Sena, 2004). Specifically, knowledge spillovers enable firms to use a greater range of external knowledge, which influences their ability to innovate (Webster, 2004; Yang et al., 2010; LeSage and Fischer, 2012; Song, 2015).
Relating knowledge spillovers with innovation activities is crucial and the evolutionary approach to economic geography appears as essential to frame this relationship as it focuses on the importance of organizational routines within the firm on innovation processes (Boschma and Frenken, 2006).
The importance of knowledge spillovers has been the focus of a significant number of studies that intend to assess, among other aspects, their contribution to regional growth and to explain the differences in economic performance of firms located in distinct regions (Funke and Niebuhr, 2005; Döring and Schnellenbach, 2006; Rodriguez-Pose and Crescenzi, 2008; Autant-Bernard et al., 2013; Kalapouti and Varsakelis, 2014). These studies emphasize, in particular, the positive impact that knowledge spillovers – from the same region or neighbouring regions – have on the regions’ growth (Rodriguez-Pose and Crescenzi, 2008). The analysis of the geographical reach of knowledge spillovers is central to a large part of these studies. For some (e.g., Bode, 2004; Verspagen and Schoenmakers, 2004), knowledge diffuses only over short distances, while others (e.g., Bathelt et al., 2004, Teixeira et al., 2008) show that geography is not as relevant in terms of proximity, meaning the transmission of knowledge can occur over long distances.
Notwithstanding the valuable contributions to the literature, most studies on knowledge spillovers refer to countries and regions with relatively high levels of development – USA (e.g., Jaffe, 1986), or, in the European context, Germany (e.g., Beise and Stahl, 1999; Bode, 2004; Funke and Niebuhr, 2005), Sweden (Andersson and Karlsson, 2007) and Italy (Caragliu and Del Bo, 2011). The peripheral regions have been relatively neglected in this regard (López-Fernández et al., 2012; Grillitsch and Nilsson, 2015). Moreover, they use innovation variables such as patents to measure knowledge spillovers, which correspond to only a part of the innovation process of organizations, especially those larger in size and resources, mostly located in relatively dynamic and developed areas. The few studies (e.g., Fitjar and Rodríguez-Pose, 2011) that have measured knowledge spillovers employing other variables, such as product and process innovation within firms, and that recognize the importance of using different sources of knowledge more related to the routines of firms in innovation processes, have also focused on more developed countries.
More peripheral countries, such as Portugal, have only very recently become the object of interest in terms of research. In particular, Faria and Lima (2012) and Natário et al. (2012) address the specific case of Portugal and Portuguese firms. Using data from the Third Community Innovation Survey (CIS III), Faria and Lima (2012) explicitly analysed the issue of knowledge spillovers, having found positive spillovers of innovation on firm value added and that process innovation spillovers were more prevalent than product innovation spillovers. However, despite the interesting analysis performed, these authors did not tackle the issue of knowledge spillovers in firms located in depressed regions. Natário et al. (2012), in turn, did analyse firms located in depressed/laggard regions, more specifically small and medium enterprises (SMEs) located in Guarda and Azores, concluding that firms in these regions innovate more in marketing and organizational aspects, but did not explicitly address the issue of knowledge spillovers.
The present chapter seeks to fill in this gap by analysing the knowledge spillovers and economic performance of firms located in depressed areas and assessing the extent to which geographical proximity matters. While external knowledge can be acquired on different spatial scales, there are strong theoretical arguments as to why geographical proximity is important for knowledge transfer, particularly in less developed areas (see Grillitsch and Nilsson, 2015). Being that innovation is essentially a collective process where firm-internal knowledge is combined with firm-external knowledge, local knowledge spillovers play a potential important role to access firm-external knowledge.
Thus, the present study, using the concept of depressed areas (PRASD, 2004), analyses the importance and mechanisms of knowledge spillovers to the economic dynamics of firms located in these areas (in this case, the Vale do Ave, a region of northern Portugal) in a relatively peripheral country such as Portugal (Fontes, 2005).
The chapter is organized as follows. Section 2 presents a literature review that systematizes the main contributions produced on the concept of knowledge spillovers, within the framework of economic geography and, more specifically, the Evolutionary Economic Geography research line. An overview of the empirical studies that have been submitted in this field is also presented. Section 3 describes the methodology adopted in this study and the empirical results are detailed in Section 4. Finally, we present the conclusions and the main lines for future research.
Importance of knowledge spillovers for the economic performance of firms
Knowledge is seen as a major factor explaining the growth differences between regions (Döring and Schnellenbach, 2006), particularly the differences that exist in terms of corporate performance (Faria and Lima, 2012). In this context, the productivity of a firm tends to depend on knowledge spillovers, including the knowledge that such a firm can absorb (Ornaghi, 2006). In the evolutionary economics framework (e.g., Dosi, 1988), knowledge is considered as intrinsically dynamic; it has a cumulative and path dependence nature, and is not transmitted automatically.
A key question that emerges from the analysis of knowledge spillovers is their link with innovation. In fact, knowledge spillovers influence the innovativeness of firms, because they can draw on a wider range of external knowledge to conduct innovative activities (Yang et al., 2010). The knowledge diffuses from a source firm to another, when the receptor firm uses this knowledge in innovation activities (Griliches, 1992). Webster (2004) confirms this link between knowledge spillovers and innovation. Through an analysis of large Australian firms, the author measures the reasons that lead firms to engage in innovation activities. The results indicate that the routines common to all industries and knowledge spillovers influence the innovative capacity of firms. Thus, knowledge spillovers seem to be a critical part of the activity and innovative capacity of firms (Czarnitzki and Kraft, 2012).
Most studies about the importance of knowledge spillovers for the dynamics of firms and regions are focused on their impact on the following indicators: (i) economic performance of firms and regions, for example the GDP per capita growth rate of the region (e.g., Rodriguez-Pose and Crescenzi, 2008); and (ii) innovation, for example the number of innovations introduced through public research (Beise and Stahl, 1999) or the number of patents granted (Bode, 2004). Also, these studies propose indicators such as patents of neighbouring regions (Bode, 2004), R&D (Rodriguez-Pose and Crescenzi, 2008) or accessibility (Andersson and Karlsson, 2007) to account for knowledge spillovers.
Focusing on the US, Jaffe (1986) measured the spillovers through proximity between firms and expenditure on R&D from other firms and f...
