Cross region knowledge spillovers and total factor productivity. European evidence using a spatial panel data model

    Publication: Working/Discussion Paper


    This paper concentrates on the central link between productivity and
    knowledge capital, and shifts attention from firms and industries to regions. The
    objective is to measure knowledge elasticity effects within a regional Cobb-
    Douglas production function framework, with an emphasis on knowledge
    spillovers. The analysis uses a panel of 203 European regions to estimate the
    effects over the period 1997-2002. The dependent variable is total factor
    productivity (TFP). We use a region-level relative TFP index as an
    approximation to the true TFP measure. This index describes how efficiently
    each region transforms physical capital and labour into outputs. The explanatory
    variables are internal and out-of-region stocks of knowledge, the latter capturing
    the contribution of interregional knowledge spillovers. We use patents to
    measure knowledge capital. Patent stocks are constructed such that patents
    applied at the European Patent Office in one year add to the stock in the
    following and then depreciate throughout the patents effective life according to a
    rate of knowledge obsolescence. A random effects panel data spatial error model
    is advocated and implemented for analyzing the productivity effects. The
    findings provide a fairly remarkable confirmation of the role of knowledge
    capital contributing to productivity differences among regions, and adding an
    important dimension to the discussion, showing that knowledge spillover effects
    increase with geographic proximity.
    Original languageEnglish
    Place of PublicationVienna
    PublisherWU Vienna University of Economics and Business
    Publication statusPublished - 1 Aug 2007

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