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Location Proximity and Productivity Spillovers: The Case of Korean Manufacturing Plants

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  • Backhoon Song

    () (Sungshin Women's University Republic of Korea)

Abstract

Knowledge spillovers have been recognized as an important source of innovation and economic growth in both industry and firm-level data. A firm may reap benefits by locating near other firms in the same geographical region. In this paper, we examine how physical proximity influences a firm's future productivity and its survival possibility. Our results indicate that a firm located in a region with a higher median total factor productivity (TFP) gains higher productivity from other firms in the same region. One possible explanation is that such a firm has more opportunity to access superior external knowledge and to produce more new ideas. Our results also indicate these productivity-enhancing characteristics do not seem to be industry-specific. Finally, we find that high productivity firms are the only significant sources of knowledge spillovers, suggesting that firms benefit most from combining their internal knowledge with the external knowledge of neighboring firms with high TFP on average. © 2015 The Earth Institute at Columbia University and the Massachusetts Institute of Technology

Suggested Citation

  • Backhoon Song, 2015. "Location Proximity and Productivity Spillovers: The Case of Korean Manufacturing Plants," Asian Economic Papers, MIT Press, vol. 14(1), pages 104-118, Winter/Sp.
  • Handle: RePEc:tpr:asiaec:v:14:y:2015:i:1:p:104-118
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    References listed on IDEAS

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    1. James D. Adams & Adam B. Jaffe, 1996. "Bounding the Effects of R&D: An Investigation Using Matched Establishment-Firm Data," RAND Journal of Economics, The RAND Corporation, pages 700-721.
    2. Ariel Pakes & Paul McGuire, 1994. "Computing Markov-Perfect Nash Equilibria: Numerical Implications of a Dynamic Differentiated Product Model," RAND Journal of Economics, The RAND Corporation, pages 555-589.
    3. Sofronis K. Clerides & Saul Lach & James R. Tybout, 1998. "Is Learning by Exporting Important? Micro-Dynamic Evidence from Colombia, Mexico, and Morocco," The Quarterly Journal of Economics, Oxford University Press, vol. 113(3), pages 903-947.
    4. Bee Yan Aw & Mark J. Roberts & Tor Winston, 2007. "Export Market Participation, Investments in R&D and Worker Training, and the Evolution of Firm Productivity," The World Economy, Wiley Blackwell, vol. 30(1), pages 83-104, January.
    5. James D. Adams & Adam B. Jaffe, 1996. "Bounding the Effects of R&D: An Investigation Using Matched Establishment-Firm Data," RAND Journal of Economics, The RAND Corporation, pages 700-721.
    6. Hopenhayn, Hugo A, 1992. "Entry, Exit, and Firm Dynamics in Long Run Equilibrium," Econometrica, Econometric Society, vol. 60(5), pages 1127-1150, September.
    7. Baptista, Rui & Swann, Peter, 1998. "Do firms in clusters innovate more?," Research Policy, Elsevier, pages 525-540.
    8. Basant, Rakesh & Fikkert, Brian, 1996. "The Effects of R&D, Foreign Technology Purchase, and Domestic and International Spillovers on Productivity in Indian Firms," The Review of Economics and Statistics, MIT Press, pages 187-199.
    9. Aw & Song, 2013. "Firm's Choice between Export and R&D and its Effect on the Firm's Productivity and Survival," Global Economic Review, Taylor & Francis Journals, pages 291-310.
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    More about this item

    Keywords

    knowledge; spillovers; innovation; economic growth; physical proximity; future; productivity; TFP;

    JEL classification:

    • L19 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Other
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L00 - Industrial Organization - - General - - - General
    • M00 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - General - - - General
    • O20 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - General
    • O35 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Social Innovation
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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