Sommeregger, Christian Hammer, Christoph Bekesi, Daniel Koch, Matthias
51st Congress of the European Regional Science Association: "New Challenges for European Regions and Urban Areas in a Globalised World", 30 August - 3 September 2011, Barcelona, Spain
This paper attempts to analyze the impact of knowledge and knowledge spillovers on regional total factor productivity (TFP) in Europe. Regional patent stocks are used as a proxy for knowledge, and TFP is measured in terms of a superlative index. We follow Fischer et. al (2008) by using a spatial-spillover model and a data set covering 203 regions for six time periods. In order to estimate the impact of knowledge stocks we use a spatial autoregressive model with random effects, which allows for three kinds of spatial dependence: Spatial correlation in the innovations, the exogenous and the endogenous variables. The results suggest that there is a significant positive impact of knowledge on regional TFP levels, and that knowledge spills over to neighboring regions. These spillovers decay exponentially with distance at a rate of 8%. Using Monte Carlo simulations we calculate the distribution of direct and indirect effects. The average elasticity of a region's TFP with respect to its own knowledge stock is 0.2 and highly significant. The average effect of all other regions' TFP is about 50% higher, which confirms that the cross-country externalities are important in the measuring of the impact.