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 Crepon-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 functionand (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.