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Industrial Agglomeration, Geographic Innovation and Total Factor Productivity: The Case of Taiwan

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Abstract

The paper analyses the impact of geographic innovation on Total Factor Productivity (TFP) in Taiwan. Using 242 four-digit standard industrial classification (SIC) industries in Taiwan in 2001, we compute TFP by estimating Translog production functions with K, L, E and M inputs, and measure the geographic innovative activity using both Krugman's Gini coefficients and the location Herfindahl index. We also consider the geographic innovation variable as an endogenous variable and use 2SLS to obtain a consistent, albeit inefficient, estimator. The empirical results show a significantly positive effect of geographic innovation, as well as R&D expenditure, on TFP. These results are robust for the Gini coefficients and location Herfindahl index, when industry characteristics and heteroskedasticity are controlled. Moreover, according to the endogeneity of geographic innovation, the Hausman test shows that the geographic innovation variable should be treated as endogenous, which supports the modern theory of industrial clustering about innovation spillovers within clusters.

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File URL: http://www.econ.canterbury.ac.nz/RePEc/cbt/econwp/0814.pdf
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Bibliographic Info

Paper provided by University of Canterbury, Department of Economics and Finance in its series Working Papers in Economics with number 08/14.

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Length: 31 pages
Date of creation: 01 Jul 2008
Date of revision:
Handle: RePEc:cbt:econwp:08/14

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Keywords: Industry agglomeration; Geographic innovation; Total factor productivity; Cluster; Research and Development;

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  1. Edward L. Glaeser & Glenn Ellison, 1999. "The Geographic Concentration of Industry: Does Natural Advantage Explain Agglomeration?," American Economic Review, American Economic Association, vol. 89(2), pages 311-316, May.
  2. Mary Jo Waits, 2000. "The Added Value of the Industry Cluster Approach to Economic Analysis, Strategy Development, and Service Delivery," Economic Development Quarterly, , vol. 14(1), pages 35-50, February.
  3. Audretsch, David B & Feldman, Maryann P, 1996. "R&D Spillovers and the Geography of Innovation and Production," American Economic Review, American Economic Association, vol. 86(3), pages 630-40, June.
  4. Steinle, Claus & Schiele, Holger, 2002. "When do industries cluster?: A proposal on how to assess an industry's propensity to concentrate at a single region or nation," Research Policy, Elsevier, vol. 31(6), pages 849-858, August.
  5. Jaffe, Adam B & Trajtenberg, Manuel & Henderson, Rebecca, 1993. "Geographic Localization of Knowledge Spillovers as Evidenced by Patent Citations," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 577-98, August.
  6. Acs, Zoltan J & Audretsch, David B & Feldman, Maryann P, 1992. "Real Effects of Academic Research: Comment," American Economic Review, American Economic Association, vol. 82(1), pages 363-67, March.
  7. Acs, Zoltan J & Audretsch, David B & Feldman, Maryann P, 1994. "R&D Spillovers and Recipient Firm Size," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 336-40, May.
  8. Maryann Feldman, 1999. "The New Economics Of Innovation, Spillovers And Agglomeration: Areview Of Empirical Studies," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 8(1-2), pages 5-25.
  9. Beason, R. & Weinstein, D.E., 1993. "Growth, Economies of Scale, and Targeting in Japan (1955- 1990)," Harvard Institute of Economic Research Working Papers 1644, Harvard - Institute of Economic Research.
  10. Marshall, Alfred, 1890. "The Principles of Economics," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number marshall1890.
  11. Berndt, Ernst R. & Christensen, Laurits R., 1973. "The translog function and the substitution of equipment, structures, and labor in U.S. manufacturing 1929-68," Journal of Econometrics, Elsevier, vol. 1(1), pages 81-113, March.
  12. Chan, M W Luke & Mountain, Dean C, 1983. "Economies of Scale and the Tornqvist Discrete Measure of Productivity Growth," The Review of Economics and Statistics, MIT Press, vol. 65(4), pages 663-67, November.
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Cited by:
  1. Yang, Chih-Hai & Lin, Hui-Lin & Li, Hsiao-Yun, 2013. "Influences of production and R&D agglomeration on productivity: Evidence from Chinese electronics firms," China Economic Review, Elsevier, vol. 27(C), pages 162-178.

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