External Knowledge Linkages and the Evolution of Comparative Advantage: An Examination of Territorial Knowledge Dynamics in China

Abstract

In the era of the knowledge economy with the superfluidity of information, labor, and goods, the ability to establish external knowledge linkages has become an indispensable asset for the development of regional industries. Based on the assumption that knowledge spillovers decay with distance, several existing studies have explored the role of neighboring regions in local industrial upgrading. Meanwhile, a small but growing literature has explored the evolution of regional comparative advantage from the perspective of multi-location territorial knowledge dynamics (TKDs), exploring multi-locational knowledge interactions (including proximity interactions and distance interactions) and their regional economic effects in the process of knowledge flows. Inspired by the literature on multi-location TKDs, this paper examines two hypotheses: (1) In addition to local capabilities, external knowledge linkages also have a positive effect on local industrial upgrading; (2) the stronger the knowledge linkages, the more similar the regional comparative advantage. Through an analysis of data on authorized patent citation and the two-digit manufacturing industry from Chinese cities in 2011 and 2016, we find that the knowledge flow networks among Chinese cities are characterized by strong external knowledge linkages to both adjacent and distant regions. Further analysis reveals that a particular Chinese city has a higher probability of developing comparative advantages if it maintains strong knowledge linkages with a city specialized in the same industry. In addition, the comparative advantages of regions with strong knowledge linkages are more similar than regions with weak knowledge linkages.