Estimates of the Impact of Static and Dynamic Knowledge Spillovers on Regional Factor Productivity

The authors develop an empirical approach to examine static and dynamic knowledge externalities in the context of a regional total factor productivity (TFP) relationship. Static externalities refer to current period scale or industry-size effects that have been labeled localization externalities or region-size effects known as agglomeration externalities. Dynamic externalities refer to the relationship between accumulated or prior period knowledge and current levels of innovation, where past learning-by-doing makes innovation positively related to cumulative production over time. The empirical specification allows for the presence of both static and dynamic externalities and provides a way to assess the relative magnitude of spillovers associated with spillovers from these two types of knowledge externalities. The magnitude of own-region impacts and other-region (spillovers) can be assessed using scalar summary measures of the own- and cross-partial derivatives from the model. The authors find evidence supporting the presence of dynamic externalities as well as static, and the estimates suggest that dynamic externalities may have a larger magnitude of impact than static externalities.