Knowledge Spillovers across Europe. Evidence from a Poisson Spatial Interaction Model with Spatial Effects

This paper investigates the impact of knowledge capital stocks on total
factor productivity through the lens of the knowledge capital model proposed by
Griliches (1979), augmented with a spatially discounted cross-region knowledge
spillover pool variable. The objective is to shift attention from firms and
industries to regions and to estimate the impact of cross-region knowledge
spillovers on total factor productivity (TFP) in Europe. The dependent variable is
the region-level TFP, measured in terms of the superlative TFP index suggested
by Caves, Christensen and Diewert (1982). This index describes how efficiently
each region transforms physical capital and labour into output. The explanatory
variables are internal and out-of-region stocks of knowledge, the latter capturing
the contribution of cross-region knowledge spillovers. We construct patent stocks
to proxy regional knowledge capital stocks for N=203 regions over the 1997-
2002 time period. In estimating the effects we implement a spatial panel data
model that controls for the spatial autocorrelation due to neighbouring regions
and the individual heterogeneity across regions. The findings provide a fairly
remarkable confirmation of the role of knowledge capital contributing to
productivity differences among regions, and add an important spatial dimension
to the discussion, by showing that productivity effects of knowledge spillovers
increase with geographic proximity. (authors' abstract)