Knowledge Externalities Research Articles

Damocles's Switchboard: Information Externalities and the Autocratic Logic of Internet Control

Abstract This paper advances a theory for the autocratic logic of internet control. Politically motivated internet control generates a positive externality for domestic data-intensive firms and a negative externality for domestic knowledge-intensive research entities. Exploiting a major internet control shock in 2014, I find that Chinese data-intensive firms gained 26 percent in revenue over other Chinese firms as the result of internet control. The same shock incurred a 10 percent decline in research quality from Chinese researchers, conditional on the knowledge intensity of their discipline. It also reduced the research quality from Chinese researchers relative to their US counterparts by 22 percent in all disciplines. Due to the positive data externality, internet control enacted to prevent domestic threats challenges the state's competing need for data sovereignty against foreign threats. Meanwhile, the state shields certain foreign knowledge-intensive actors from the negative knowledge externality to avoid the immediate economic costs they might otherwise impose. Qualitative evidence supports both implications, highlighting the centrality of short-term interests and foreign actors in autocratic decision making.

KNOWLEDGE EXTERNALITIES AS COMMONS FOR INNOVATION: A CRITICAL ANALYSIS OF PUBLIC EXPENDITURE ON EDUCATION

Objective: This paper analyzes how knowledge externalities function as common resources that foster innovation. Theoretical framework: The existing studies often frame the problem of knowledge externalities as a problem of knowledge market failures and recommend public intervention, such as public expenditure on education which is a simple solution. However, the experience from OECD countries shows that there is an inherent trade-off between public and private expenditures at every level of the education system which indicates the commonality of these resources. Method: This paper uses a semi-systematic literature review and quantitative analysis of public and private expenditures on education and their impact on patents generated across OECD countries. Results and discussion: This article argues that: first, knowledge externalities are complex common resources that require collective action, facilitated by public policy to address associated social dilemmas. This means, the commonality of the knowledge externality is in fact that no one is excluded to benefit from knowledge externalities except those who lack capabilities, however, due to lack of funding, these resources can be depleted; secondly, Public expenditure on education must not only account for the positive externalities generated but also recognize education as a component of the complex commons. The complexity of these resources justify why government intervention is required; third and finally, knowledge externalities contribute to social learning society which is an imperative to innovation processes. Research implications: This recognition can foster peer production and a learning society, both of which are essential for driving innovation. Originality/value: This paper assesses and synthesizes the literature on knowledge externalities and their policy such as public expenditure on education in a way that enables to understand knowledge externalities as common resources that enable holistic social learning which boost innovation.

Impact of cross-border mergers and acquisitions on firm innovation performance: from the perspective of dynamic capability theory

ABSTRACT This study constructs an empirical framework from the perspective of dynamic capability theory, and uses a combined dataset of Chinese listed companies from 2008 to 2020 to test the causal impact of cross-border mergers and acquisitions (M&As) on firm innovation performance by using propensity score matching, time-varying difference-in-differences model and instrumental variable method. The findings are as follows: (1) Cross-border M&A has a significant promoting effect on the innovation performance of acquiring firms. (2) Heterogeneity analysis shows that traditionally less innovative state-owned, non-manufacturing, and non-high-tech enterprises experience notable enhancements in their performance through cross-border M&As. The post-M&A innovation performance of enterprises in central China is strong, followed by enterprises in eastern China, while enterprises in western China show limited improvement. (3) Among the internal factors of firm dynamic capability, knowledge breadth and managerial capability positively moderate the impact of cross-border M&As on innovation performance, while knowledge depth and financing constraints play a negative moderating role. (4) Among the external factors of firm dynamic capability, local knowledge externalities and regional trade resilience play a positive moderating role. This study highlights the importance of firm dynamic capabilities in the cross-border M&As process and provides new insights into innovation strategies in emerging economies.

The nexus between the cultural and creative industries and the Sustainable Development Goals: a network perspective

ABSTRACT Scholars and policymakers have widely claimed that the cultural and creative industries (CCIs) provide positive knowledge externalities that can help address sustainable development challenges, yet questions remain about the pathways through which this occurs. In this study, we hypothesise that several features of knowledge networks in the CCIs relate to a location’s sustainable development outcomes. We use data of ownership networks between 22,455 cultural heritage-related firms across 292 cities in China to empirically test our hypotheses. We find that the density of the CCI network has a positive relation with a city’s performance in terms of several Sustainable Development Goal measures. Moreover, the scale of local CCIs has an inverted ‘U’-shaped relationship with a city’s sustainability performance. Finally, a city’s degree of trans-local ties has an inverted ‘U’-shaped relation with a city’s sustainability performance.

How can suppliers strategically involve downstream manufacturers in research and development collaboration? A knowledge spillover perspective

Innovation collaboration has become increasingly important for supply chain partners. In this study, we examine the impact of innovation collaboration on supply chain partners, specifically focusing on how suppliers can design strategies to motivate downstream buyers to engage in cost-reduction research and development (R&D) activities. We present a scenario in which two downstream manufacturers purchase identical parts from a shared supplier and compete on the end market while individually investing in R&D. Our findings indicate that the manufacturers may be less inclined to invest in R&D due to knowledge spillover effects, which can reduce their order quantities from the supplier. To address this issue, we propose that the supplier become involved in the R&D through a cost-sharing agreement, aligning the incentives of all supply chain partners and internalizing both supply chain and knowledge externalities. Our results suggest that this approach allows the supplier to share R&D costs with the manufacturers while ensuring that the manufacturers are not worse off in a supply chain collaboration scenario compared to other scenarios. We also recommend that the supplier involve downstream manufacturers with perfect spillovers.

The relevance of scientific knowledge externalities for technological change and resulting inventions across European metropolitan areas

The relevance of scientific knowledge externalities for technological change and resulting inventions across European metropolitan areas

Does FDI bring knowledge externalities for host country firms to develop complex technologies? The catalytic role of overseas returnee clustering structures

Prior research has extensively studied FDI spillovers on broadly defined technological innovation but offered inconclusive evidence. Relatively little is known about how the knowledge characteristics of local technological development are shaped by FDI and the innovation context where this development takes place. We therefore study the influence of FDI presence on host country firms' technological progress with a focus on two factors: the underlying technological characteristic, complexity, which reflects the difficulties in recombining diverse knowledge combination for innovation, and an under-studied contextual contingency: the local clustering of returnees (skilled returned migrants) that creates different interactive environments for incorporating foreign knowledge. Using a unique sample of 35,376 firms over an 11-year period in China's equivalent of Silicon Valley, Zhongguancun, we reveal that FDI exerts a curvilinear spillover effect on local firms' technological complexity. Furthermore, we find returnees' clustering in related sectors heightens the effect of FDI spillovers on local technological complexity, whereas unrelated sectoral clustering flattens this U-shaped relationship, reducing FDI spillovers. We add to the debate on FDI knowledge externalities by highlighting the importance of considering knowledge characteristics and the contextual setting of returnee clustering in understanding FDI spillover effects on local technological progress. Theoretical and practical implications are discussed.

A note on variable markup, knowledge spillover, and multiple steady states in the variety expansion model

Abstract This paper incorporates the variable elasticity of substitution preferences in the variety expansion model developed by Grossman and Helpman [(1991) Innovation and Growth in the Global Economy, MIT Press]. There exists a balanced growth path when the elasticity of substitution is constant with knowledge spillover. When the elasticity of substitution is variable and the knowledge spillover is sufficiently small, a unique and stable steady state exists. When the knowledge spillover is sufficiently large, the steady state is unique and unstable. When the size of the knowledge externality is moderate, multiple equilibria exist.

Adjustment dynamics in network game with stochastic parameters

In this paper, stochastic parameters are introduced into the network games model with production and knowledge's externalities. This model was formulated by V. Matveenko and A. Korolev and generalized two-period Romer model. Agents' productivities have deterministic and Wiener components. We consider the dynamics that occur when two complete networks are combined. Explicit expressions in the form of Brownian random processes are obtained. A qualitative analysis of the solution of a system of stochastic equations is carried out.

The relationship between R&D knowledge spillovers and employment entry

Recent approaches to entrepreneurship seek to explain regional heterogeneity by exploring the link between knowledge endowment and new firm creation. There are two main gaps in this stream of research. First, entrepreneurship tends to be considered in terms of entry rates rather than in terms of job creation. Second, most empirical studies focus on relatively large geographical areas and overlook the distance at which knowledge externalities dissipate. The present paper exploits data on firms based in the Emilia-Romagna region (Italy) to show that private R&D spillovers are positively associated with the size at entry of innovative firms only for those located close to the R&D activities and that these spillovers dissipate at a few kilometres from the R&D source. Non-linearities are detected only for low-tech sectors.

A Critical Review of Organizing Knowledge Management for Innovation

This study critically reviews the literature that demonstrates the relevance of knowledge management process and business intelligence, as well as the challenges arising when it comes to organising for innovation in today’s business organisations. Hence, the to attain desired innovation it is important to integrate business intelligence (BI) and knowledge management (KM) for the diffusion of innovation. Hence, importance of integrating business intelligence (BI) and knowledge management (KM) for the diffusion of innovation. Organisations’ innovation dynamics and knowledge processes that lead competitive advantage of organisations are examined. Literature points that many organisations rely on individual employees’ knowledge and skills. As a result, information systems that enable knowledge management (KM) as a critical tool for gaining a competitive advantage (Campbell, 2012). The seminal argument in this study is that knowledge diffusion and knowledge externalities are the main drive of increase in economy. As a result, this is expected to be a win-win value proposition for such organisations integrating business intelligence and knowledge management. However, owing to changing business conditions and the rapidity of technological development, as well as the rising expenses involved with carrying out R&D operations in many of these organisations, maintaining competitive advantage through internal R&D alone is becoming increasingly challenging. The importance of innovation processes and network dynamics in the context of Integrated Knowledge Networks is explored, which provide feasible possibilities for utilising innovation as an interactive process as well as knowledge processes for creating business intelligence in organisations. Due to the challenges of organising for innovation, the organisations figured to rely on “Open innovation” approach to intentionally seek out unique knowledge and information outside of their organisational bounds. This study also discusses the challenges that organisations hurdle on in managing inter-organizational cooperation because of external knowledge sourcing techniques (Campbell, 2009). This is due, in part, to the fact that they span a wide range of organisations, people, and resources, as well as the interactions that exist between them. The creative processes and network dynamics are facilitated by an architecture that blends organisational and technical aspects in Integrated Knowledge Networks. Hence, the study focuses on twofold to sourcing external knowledge in particular: learning from international business environments and corporate venturing strategy for corporate incubators.

The Role of Entrepreneurship in Economic Growth and Development Models

For decades, the entrepreneur was considered the” invisible man”. The role of entrepreneurship was ignored in economic literature until the 20th century and in economic growth and development models until the early the 1990s. Since then, the role of entrepreneur is included in different branches of economics. The purpose of this paper is to review the role of the entrepreneurs and entrepreneurship in economic growth and development models. After being considered an invisible man in the economics literature, Schumpeter 1911, 1934 considered economic development as a dynamic process that disturbs the closed circular flow of the economic system. Schumpeter considered the entrepreneur as an innovator who plays a fundamental role in the process of economic development. However, few attempts have been made to include entrepreneurship in neoclassical and general equilibrium growth and development models due to the assumptions of perfect competition, static market equilibrium and perfect information about markets and production processes. Endogenous growth models (Romer 1986, 1990; Lucas 1990; Schmitz 1989; Aghion and Howitt 1992) make it possible to include entrepreneurship and entrepreneurs in growth models by emphasizing the role of knowledge externalities, innovations and returns to scale. They consider entrepreneurship as the channel through which these processes affect economic growth. The paper also reviews empirical studies using three macroeconomics databases to describe the entrepreneurial impact on growth, productivity and employment. JEL Codes: B00, O00, O11

Game Equilibria and Transition Dynamics in a Dyad with Heterogeneous Agents

In this paper, the game-theoretic model with production and knowledge externalities on a network with two time periods formulated by Matveenko and Korolev is further developed. This model is an extension of the Romer two-period model. The simplest complete network with heterogeneous agents—the dyad with agents differing by their productivity—is considered. Dynamics in the dyad are studied. All possible game equilibria in the dyad and the conditions of their existence are found. Conditions for the dynamic stability of equilibria are established.

Does Firm Investment Respond to Peers’ Investment?

We study whether, how, and why the investment of a firm depends on the investment of other firms in the same product market. Using an instrumental variable based on the presence of local knowledge externalities, we find a sizeable complementarity of investment among product market peers, holding across a large majority of sectors. Peer effects are stronger in concentrated markets, featuring more heterogeneous firms, and for smaller firms with less precise information. Our findings are consistent with a model in which managers are imperfectly informed about fundamentals and use peers’ investments as a source of information. Product market peer effects in investment could amplify shocks in production networks. This paper was accepted by Gustavo Manso, finance.

R&D cooperation, proximity and distribution of public funding between public and private research sectors

AbstractIn this paper, we compare the distributions of socially optimal public funding between private and public research sectors in cooperative and noncooperative R&D settings in the presence of externalities. We show that the proportion of public funding allocated to the private sector research always increases with the level of inter‐firm spillovers but decreases with the concentration of the industry. This share is smaller (larger) when firms cooperate in R&D than when they do not for high (low) spillovers. Moreover, increases in public knowledge externalities to the private sector due to a closer proximity (distance) between the two research sectors increase the share allocated to the public sector regardless of whether firms cooperate or not in R&D.

Variety, Smart Specialization and Tourism Competitiveness

This work analyzes how regional tourism dynamics (demand, supply and specialization) and innovation performance may influence tourism competitiveness. The novelty and originality of the analysis is the inclusion of aspects related to the sectorial priority options defined within smart specialization strategies in European regions as potential explanatory factors. By using a panel data model and focusing on regions where tourism is one of the priority sectors for Regional Innovation Strategies (RIS3, 2014–2020), the results reveal positive impacts of tourism demand, supply and specialization on the value added produced by tourism activities. Moreover, immaterial aspects related to the qualification of the regional labor force and innovation dynamics (investment in research in development) also exert a positive impact on tourism competitiveness. The novel results obtained regarding the impacts of smart specialization strategies show a high potential of the tourism sector to benefit from geographical, cultural and institutional forms of proximity. The results also suggest that knowledge externalities arising from interactions with both related or unrelated sectors—by exploiting interactions and connectivity with sectors with both low and high cognitive distances—may emerge.

Related variety as a driver of regional innovation and entrepreneurship: A moderated and mediated model with non-linear effects

The notion of related variety has proved to be an important contribution to the literature on innovation-enhancing regional knowledge externalities in different industry structures. Related variety provides a disentangled view of diversification based on the technological and cognitive proximity of different industries. The core hypothesis of this concept, which states that related variety fosters innovation and employment growth by facilitating knowledge spillovers, has gained increasing empirical support. To date, a relatively modest number of empirical studies have explicitly linked related variety to enhanced regional innovative output. The role of entrepreneurship has also received little attention in the literature, even though economic theory emphasizes that entrepreneurs have an important role in transforming spillovers of knowledge into innovation and growth. The purpose of this paper is to contribute to the extant literature on regional innovation with an analysis that probes deeper into the mechanism by which related variety fosters innovation, and to examine how knowledge appropriation mechanisms affects the entrepreneurial opportunities that external knowledge presents. Our empirical analysis employs a moderated and mediated model with non-linear knowledge spillover effects of related variety. We use panel data on 60 Swedish functional analysis regions for the years 2008–2016 and estimate fixed effects models to examine the relationships between related variety, regional innovation and entrepreneurship. Conceptually, our results disentangle the effects of regional knowledge stocks and related variety on the rate at which new ideas are commercialized through entrepreneurship. We find a substantial direct effect of knowledge stocks, and an important indirect effect via knowledge spillovers between cognitively similar firms. A key contribution of this paper is that we show that this effect is conditional on the extent to which knowledge appropriation mechanisms are implemented, which has not been adressed in the literature on knowledge spillover effects of related variety before. Another novel contribution of this paper is that we find evidence of diminishing marginal returns to related variety with respect to innovation and entrepreneurship.

Game Equilibria and Transition Dynamics in Complete Networks and in a Triangle with Heterogeneous Agents

The game equilibrium in networks described by the two-period Romer model of endogenous growth with production and knowledge externalities is considered. In the first period, each agent can invest some share of his resources. In the second period, the consumption depends on his investment and productivity as well as the investments of his network neighbors. The unification dynamics are described by a system of difference equations. For a complete network with an arbitrary number of homogeneous agents and also for a triangle (a complete network with three types of agents possessing different productivities), possible equilibria are studied and their dynamic stability under different combinations of the game parameters is analyzed.

Firm financial soundness and knowledge externalities: A comparative regional analysis

AbstractThis paper investigates the role of the regional context with regard to the influence of human capital and knowledge spillovers on SMEs' financial soundness. Our empirical setting is based on a multilevel analysis of panel data, which allows superior treatment of hierarchical data. The analysis is applied to SMEs belonging to the manufacturing sector and operating in four European countries over the period 2010–2015. We find that a combination of individual and regional‐level characteristics explains firm soundness better than individual features alone. Furthermore, we find that a high local educational level and knowledge spillovers improve firm soundness and that their effects vary according to the regional level of knowledge. These results are confirmed by several robustness tests.

Geographic spillover of dominant firms’ shocks

This paper shows that productivity shocks to the 100 largest U.S. firms (by revenue) contain systematic information. Specifically, shocks to the top-100 firms predict future shocks to geographically close firms. Intra-sector trade links are an important economic channel for spillover effects. However, these spillovers are not restricted to firms’ trade links only. Knowledge externalities and state income tax payments of the top-100 firms are other economic channels through which shocks propagate. Market participants do not fully incorporate the information contained in shocks to the top-100 firms. Consequently, a portfolio analysis that exploits the slow diffusion of information generates an annual risk-adjusted return of 5.4%. Overall, the results show how productivity shocks to the few largest firms in the U.S. spillover to other firms and potentially aggregate to affect the national economy.