Growth of new firms and spatially bounded knowledge externalities

Abstract

If localized knowledge spillovers are important, new firms will tend to locate in proximity of one another, as well as other knowledge sources, in order to capitalize on external knowledge stocks. Although theories that emphasize knowledge spillovers thus present the urban and regional character of a firm’s proximity to knowledge sources as a stylized fact, the microfoundations of economic growth in agglomerations are among the most anticipated issues in urban economic research. In this paper, we define knowledge-intensive environments along several dimensions, and analyze new firms’ survival and growth at the individual level. We apply multilevel regression to avoid potential estimation biases, and use firm-level data for newly established manufacturing and business services firms over the period of 2001–2006 in the Netherlands. We find that the urban knowledge context significantly relates to firm-level employment growth, but that this is conditioned by heterogeneous features of the firm population and knowledge externalities, including (a) industries—more in services than in manufacturing; (b) types of knowledge context—more positively related to (non-technical) innovation than to (technologically) RD and (c) types of post entry process—different for survival and growth. We also find significant interaction effects between the growth of R&D-specialized firms with university presence.