Firm Growth and Localized Knowledge Externalities

A lively debate in the literature focuses on the potential for a firm to profit from a loca-tion in a knowledge intensive context. If localized knowledge spillovers are important, firms tend to locate in proximity to capitalize on the knowledge stock of each other and knowledge institutions. We apply econometric modeling techniques that enable us to model firm level survival and (subsequent) employment growth simultaneously with different types of locally endowed knowledge externalities. We define the latent contextual concept of ‘knowledge economy’ using three manifest (measurable) dimensions. Based on the knowledge economy li-terature, we not only focus on technological externalities (‘R&D’), but we value complementa-ry indicators like the successful introduction of new products and services to the market (‘in-novation’) and indicators of skills of employees ('knowledge workers'). The latter contains the use of ICT, educational level of the workforce, and communicative and creative skills. We use employment data for manufacturing and business services firms stemming from a micro data-set of approximately 62.000 firms in the Netherlands in the period 2001-2006. We conclude on the size and knowledge related composition of the contextual effects, in which the innovation dimension turns out to be most robustly related to firm-level economic growth.