Frank G. van Oort and Otto Raspe Introduction Due to the substantial theoretical foundation of the role of knowledge in modern growth theory, knowledge is regarded as an explicit and crucial factor for generating sustained economic growth in Western economies (Audretsch et al., 2006). Within this theorizing, knowledge spillovers are considered a key element in these new growth theory models and form a mechanism in firm-external economies (Koo, 2005). According to this view, individual firms produce (technological) knowledge. At first, this is private to the firm; afterwards, it might spill over to the rest of the economy as it can be copied at almost no cost by other firms. It even might become social knowledge, acting as an external effect in enhancing the productivity of all firms. With the spillover effect, an aggregate production function with otherwise constant or decreasing returns to scale, may exhibit increasing returns to scale, allowing sustained long-run growth. An implication of this view is that a firm, not able to innovate on its own, can benefit from the research findings of firms working along similar lines (Sena, 2004). The geographical and regional economics literature on knowledge spillovers confronts us with the fact that despite its public good properties, knowledge does not diffuse instantaneously to production facilities around the world (Acs and Plummer, 2005; Döring and Schnellenbach, 2006). In this literature there is a tradition in analyzing the local advantages of proximity or agglomeration, questioning whether regional economic growth is higher in regions where more...
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