What When Space Matters Little For Firm Productivity? A multilevel analysis of localised knowledge externalities

This paper contributes to the debate on localized knowledge externalities as potential source for firm productivity gains. We apply multilevel analysis to link firm productivity (and growth) to knowledge intensive spatial contexts in the Netherlands. If localized knowledge externalities are important, then firms are hypothesised to co-locate in order to capitalize on each other's knowledge stocks. We conceptualise the regional knowledge base by three dimensions: local 'research and development' intensity, local 'innovativeness', and the characterization of locations by a ‘knowledge workers’ dimension (based on ICT use, educational level, communicative and creative skills). Controlling for firm's heterogeneity, we find a relatively small spatial effect: regional characteristics contribute for only a few percents to firm productivity. The regional intensity of 'innovation' most significantly contributes to this effect. We do not find a contextual spatial effect for productivity growth. These results suggest that the territorial dimension of knowledge externalities should not be exaggerated.