Knowledge spillovers, agglomeration and macroeconomic growth: An empirical approach

Knowledge spillovers, agglomeration and macroeconomic growth: an empirical approach, Regional Studies 38, 977-989. Endogenous growth theory emphasizes the role of knowledge spillovers in macroeconomic growth but leaves out the regional dimension, although substantial evidence has been provided in the recent empirical economics literature that a significant fraction of knowledge spillovers tends to be localized. The new economic geography literature extends this framework by pointing to the interplay between spillovers and agglomeration and to the resulting cumulative regional growth, but until the recently, it has left out the macroeconomic dimension. This paper takes a step in the direction of empirically investigating the role of localized factors of technological change in macroeconomic growth. It is suggested that not only technological change, but also spatial economic structure should be treated endogenously in economic growth models. It is argued that the particular spatial structure of the economy is an important factor in macroeconomic growth. To demonstrate this, an empirical modelling framework is developed that links a model of localized knowledge production with a complete macro econometric model and applies Hungarian data in concrete investigations.