The locus of knowledge externalities and the cost of knowledge

The locus of knowledge externalities and the cost of knowledge. Regional Studies. This paper provides an extended Crépon–Duguet–Mairesse (CDM) approach to analyse jointly the simultaneous effects of knowledge spillovers in the knowledge-generation and technology production functions. It introduces the distinction between imitation and knowledge externalities and articulates the hypothesis that spillovers yield their effects via three well-distinct mechanisms: (1) knowledge externalities that exert positive and direct effects on the knowledge-production function and (2) indirect effects on the technology-production function via their effects on the cost of knowledge; and (3) imitation externalities that exert direct and positive effects on productivity in the technology-production function. We test our hypotheses on a large panel of Italian companies distributed in NUTS-2 regions for the period 2005–09. The econometric analysis consists of a model comprising a system of equations that test the simultaneous role of spillovers in the knowledge-generation and technology-production functions with the inclusion of endogenous knowledge costs. The results confirm that the access to external knowledge – as an input in the knowledge-generation function – plays a key role in increasing the knowledge output and – as an input in the technology-production function – has positive indirect and direct effects on the productivity of firms.