Agglomeration economies in knowledge production over the industry life cycle: evidence from the ICT industry in the Seoul Capital Area, South Korea

Abstract

It is well acknowledged that agglomeration economies contribute to knowledge production, which is crucial in the current knowledge-based economy. The literature on evolutionary agglomeration stresses that the effects of agglomeration economies may vary depending on the industry life cycle. But much is not known about what sources of agglomeration economies play an important role in knowledge production at each stage of the life cycle: industrial localization versus diversification, and leadership by large firms versus competition among small firms. This study investigates knowledge production in the Information and Communication Technology (ICT) industry in the capital area around Seoul, South Korea, to answer this question. A panel data set for the patent applications during the period of 2006–2011 is used to model knowledge production in terms of different sources of agglomeration economies. The results show that distinct patterns can be found depending on the industry life cycle. Leadership by large firms has positive effects on knowledge production during the growth stage (2006–2009), while its effects become insignificant during the maturity stage (2009–2011). This is in line with the expectations of evolutionary agglomeration theory. The effects of industrial diversity change from negative to insignificant as the ICT industry enters the maturity stage. In the meantime, competition always has positive effects, while localization always has no significant effects.