The accumulation of knowledge, a non-rival and partially non-excludable good, is a key determinant of economic growth of nations (Barro and Sala-i-Martin 2003; Romer 1990; Lucas 1988). Not surprisingly, many empirical studies have found that the emergence of multi-purpose technologies, e.g. computers, and the increased globalization have raised the knowledge or skill intensity of production processes (Berman et al. 1994; Feenstra and Hanson 1997). However, the growth and trade literature often assume that the resulting economic gains apply uniformly across firms or regions of a country.
In fact, wide disparities exist in the level and types of economic activity among firms or regions within a country (Bernard and Jensen 1997; Henderson et al. 2001). In light of regional and firm heterogeneity, factors contributing to high skill intensive production and its spatial concentration (e.g. Silicon Valley in the United States or Bangalore in India) have received substantial empirical attention (Audretsch and Feldman 1996; Audretsch and Feldman 2004).
In this study, we focus on factors raising plants’ skill-intensity of production in the context of a developing economy. The distinguishing feature of developing countries is their recent urbanization accompanied by rapid accumulation of skilled workers in cities (Henderson 1986; Henderson et al. 2001). In explaining the above phenomenon, Henderson (1986) finds that (i) high skill-intensive industries tend to locate in large cities and (ii) labor demand is biased toward skilled worker when city size increases. A factor causing skill bias in labor demand is cities’ specialization in high skill intensive production by outsourcing less skill intensive processes.
In addition to the outsourcing, knowledge spillovers are considered to be a key source of the skill bias of labor demand in large cities. The objective of this study is to identify the mechanism behind the accumulation of high-skill intensive production in specific regions by focusing on the partial non-excludability of knowledge, i.e. spillovers, as a causal factor. A better understanding of the underlying process is necessary in the search for regional polices to encourage high skill-intensive production.
Download
Knowledge Spillovers and Spatial Concentration of High Skill-Intensive Production: The Chilean Case
