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The two sides of proximity in industrial clusters: The trade-off between process and product innovation

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  • Callois, Jean-Marc
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    Abstract

    According to the literature on industrial districts, the proximity of small firms operating in a similar sector can lead to several positive externalities, which enhance collective efficiency. We investigate this assumption by building a microeconomic model in which a set of small firms trades off two opposite effects. First, the closer they are to each other, the more they can share fixed costs or pool risks, and the more they can innovate on more efficient processes. Second, the closer they are, the less diverse is their cognitive environment, and the less they innovate on products. We find that there is a "bell-shaped relationship" between proximity and the firms' performance. Moreover, equilibrium configurations tend to produce too much proximity from the consumers' and the workers' point of view, but too few proximity from the firms' point of view.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Urban Economics.

    Volume (Year): 63 (2008)
    Issue (Month): 1 (January)
    Pages: 146-162

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    Handle: RePEc:eee:juecon:v:63:y:2008:i:1:p:146-162

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    Web page: http://www.elsevier.com/locate/inca/622905

    Related research

    Keywords: Industrial districts Clusters Industrial organization Process innovation Product innovation;

    References

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    1. Steven Durlauf & Marcel Fafchamps, 2004. "Social Capital," Development and Comp Systems 0409060, EconWPA.
      • Durlauf, Steven N. & Fafchamps, Marcel, 2005. "Social Capital," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 26, pages 1639-1699 Elsevier.
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    Cited by:
    1. Elisa Galeotti, 2009. "Do Domestic Firms Benefit from Geographical Proximity with Foreign Investors? Evidence from the Privatization of the Czech Glass Industry," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 3(1), pages 026-047, March.
    2. Ford, Timothy C. & Rork, Jonathan C., 2010. "Why buy what you can get for free? The effect of foreign direct investment on state patent rates," Journal of Urban Economics, Elsevier, vol. 68(1), pages 72-81, July.
    3. Cheng, Cheng-Feng & Chang, Man-Ling & Li, Chu-Shiu, 2013. "Configural paths to successful product innovation," Journal of Business Research, Elsevier, vol. 66(12), pages 2561-2573.

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