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The Rise (and Fall) of Tech Clusters

Author

Listed:
  • Sergey Kichko
  • Wen-Jung Liang
  • Chao-Cheng Mai
  • Jacques-Francois Thisse
  • Ping Wang
  • Sergei Kichko

Abstract

Tech clusters play a growing role in knowledge-based economies by accommodating high-tech firms and providing an environment that fosters location-dependent knowledge spillovers and promote R&D investments by .rms. Yet, not much is known about the economic conditions under which such entities may form in equilibrium without government interventions. This paper develops a spatial equilibrium model with a competitive final sector and a monopolistically competitive intermediate sector, which allows us to determine necessary and sufficient conditions for a tech cluster to emerge as an equilibrium outcome. We show that strongly localized knowledge spillovers, skilled labor abundance, and low commuting costs are key drivers for a tech cluster to form. Not only is the productivity of the final sector higher when intermediate firms cluster, but a tech cluster hosts more intermediate firms and more R&D and production activities, and yields greater worker welfare, compared to what a dispersed pattern would generate. With continual improvements in infrastructure and communication technology that lowers coordination costs, tech clusters will eventually be fragmented.

Suggested Citation

  • Sergey Kichko & Wen-Jung Liang & Chao-Cheng Mai & Jacques-Francois Thisse & Ping Wang & Sergei Kichko, 2020. "The Rise (and Fall) of Tech Clusters," CESifo Working Paper Series 8527, CESifo.
  • Handle: RePEc:ces:ceswps:_8527
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp8527.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    high-tech city; knowledge spillovers; intermediate firm clustering; land use; commuting; R&D;
    All these keywords.

    JEL classification:

    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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