Innovation of ICT Manufacturing and Agglomeration Economies: Evolution over the Life Cycle

Abstract

Innovation is one of the most important driving forces of ICT industries, the leading industry of the Korean economy, and agglomeration economies are known to have positive impacts on innovation. The evolutionary agglomeration theory, however, suggests that the effects of agglomeration economies may vary depending on the life cycle of an industry. This study investigates how agglomeration economies have affected the innovation of the ICT manufacturing sector over its life cycle in the Seoul Capital Area (SCA), South Korea. A panel data set for patent applications during the period 2001–2013, which falls into the birth stage (2001–2003), the growth I (2003–2006) and II (2006–2009) stages, and the maturity stage (2009–2013), is used to model innovation in terms of various types of agglomeration economies. The results show that the types of agglomeration economies that have significant impacts on innovation vary over the life cycle of the industry: while local industrialization has a positive impact only in the birth stage, diversity has positive impacts in all the stages except the growth II stage. While large firms’ leading has a positive impact only in the growth II stage, competition among small firms has a positive impact only in the birth stage. This implies that different strategies for agglomeration are needed over the life cycle in order to sustain innovation in ICT manufacturing.