Firm Size And Capabilities, Regional Agglomeration, And The Adoption Of New Technology

Abstract

The literature on agglomeration economies suggests that, in addition to firm-specific attributes, the local geographic context conditions the expected profitability of technology adoption. All rheories of technology diffusion assumc that inter-firm learning is the outcome of contact with prior adopters. Yet, with few exceptions, thc attributes of location that maximize the opportunities for learning (and hence, reduce thc costs of technology adoption for all firms in the same locale) have been given only cursory treatment. In this paper, we develop and test a model in which both firm-specific capabilities and placc-specific cxtcrnal economies affect the firm's decision to adopt a new technology. Our data colile from two national surveys conducted in 1987 and 1991. Because we have information on two different time periods, we are able to specify firm and place-specific conditions that precede the technology adoption decision. We find that localization (as measured by regional clustering of enterprises in related industries) and urbanizalion (as mcasured by the diversity of industries, and by the concentration of degree granting engineering institutions) provide knowledge spillovers that facilitate the adoption of new tcchnology by local establishments. Moreover, the impact of urbanization econonlies is size-related: The impact of a diverse region on adoption is evcn greater for small enterprises than for large ones.