Knowledge complexity and the mechanisms of knowledge generation and exploitation: The European evidence

A knowledge complexity trade-off can be identified if and when the complexity of the stock of knowledge engenders positive effects in the recombinant generation of new technological knowledge but negative ones in its exploitation in terms of productivity gains. On the one hand, the complexity of the stock of knowledge increases the scope for recombination and hence the amount of knowledge that each firm is able to generate with a given budget. On the other, the complexity of the stock of knowledge has controversial effects on productivity: the indirect effects -via the larger amount of knowledge generated upstream- are positive but the direct ones can be negative if they generate difficulties in the exploitation of a highly heterogeneous stock of knowledge. The econometric test on the European regions in the years 1997-2009, provides strong empirical evidence about the relevance of the composition of the stock of quasi-public knowledge and its twin positive effects in terms of the direct support of the knowledge generation function and of the indirect one on productivity growth. Moreover, the analysis highlights the negative direct effects on productivity dynamics, though with substantial heterogeneity across different groups of regions.