Localized Knowledge Spillovers and Regional Employment Growth: Evidence from Germany
The present paper aims at explaining the regional deconcentration of economic activities in (West) Germany during the past two decades. Using an idea-based endogenous growth model that encloses several innovative sectors, and in which economic activity is subject to externalities of agglomeration, we test the hypothesis that human-capital intensive activities in (technical) manufacturing R&D, manufacturing management, and producer services continue to concentrate on agglomerations because of localized knowledge spillovers, while manufacturing production which does not benefit directly from knowledge spillovers deconcentrates because of agglomeration diseconomies. The empirical results from cross-section regressions for 75 West-German regions are in line with the hypothesis on spatial deconcentration of manufacturing production due to agglomeration diseconomies, but clearly reject the hypothesis on ongoing spatial concentration of high-skilled workers driven by knowledge spillovers.
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