Knowledge Governance Pecuniary Knowledge Externalities And Total Factor Productivity Growth

Building upon both the Schumpeterian and the Marshallian legacies, this paper elaborates a model of localized technological change cum pecuniary knowledge externalities to provide a systemic explanation for total factor productivity. The generation of technological knowledge consists in the recombination of existing bits of heterogeneous technological knowledge that are necessarily possessed by a myriad of agents. As such much technological knowledge used in the generation of further knowledge is external to each agent. Nevertheless external knowledge is an essential input into the recombinant generation of new technological knowledge. In this context knowledge governance mechanisms play a key role in the identification, recollection and provision of the specific item of technological knowledge, external to each agent, at each point in time. Consequently, effective knowledge governance mechanisms engender pecuniary knowledge externalities. The latter explain the levels and the growth of total factor productivity when existing units of external knowledge can be bundled and used –again- at costs that are below reproduction ones.