Localised Spillovers and Knowledge Flows: A Study on the Effects of Proximity and Labour Mobility on Plant Performance

This paper aims to shed some light on the influence of geographical proximity on both intra- and inter-industry spillovers by elaborating on the geographical dimension of both localised spillovers and inter-firm knowledge flows. By means of a unique longitudinal micro-database with information on all plants and employees in Sweden, both plant-specific agglomeration measurements and labour markets at various distances from each of the 8,313 plants in the sample were created. OLS-regressions were run to account for what type of co-located activities that is most beneficial to productivity growth of plants between 2001 and 2003; how different types of knowledge flows – in and out from the plant – affect performance, and finally; how geographical proximity influences the effects of both localised spillovers and knowledge flows. The empirical results indicate that it is not possible to establish whether either intra- or inter-industry spillovers are most beneficial unless the geographical dimension is considered. This is because neither too much nor too little proximity (measured as both geographical and cognitive proximity) between co-located activities is likely to produce significant localised spillovers. This seems also to be the case when assessing more directly the impacts of inter-plant knowledge flows via labour mobility – only knowledge flows that are complementary to the existing knowledge base of plants, and neither characterised by too much nor too little geographical proximity, affect plant performance positively. Concerning the outflows of skills, the results indicate that it is less harmful for the dispatching plant if the former employee remains within the local milieu as compared to leaving for a job in another part of the economy.