Technological Capability, Agglomeration Economies and Firm Location Choice

Abstract

Jo Y. and Lee C.-Y. Technological capability, agglomeration economies and firm location choice, Regional Studies. This paper argues that a firm's ability to produce and absorb technological knowledge, or technological capability, influences its choice of location among regions characterized by different types of agglomeration. This paper found that geographically bounded knowledge externalities, one of the forces that attract firms into a particular location, have a differential effect on firm location choice across firms depending on the level of their technological capability: for firms with low technological capability knowledge externalities from co-located competitors, or competitive specialization, have a stronger positive effect on their location choice, while for firms with high technological capability knowledge externalities from co-located firms from related and complementary industries, or complementary specialization, more strongly influence their location choice. Furthermore, the differential effect of agglomeration economies between low- and high-capability firms is more pronounced in industries with strong non-legal appropriability, implying that firms can use their location choice as a strategic tool for dealing with the spillovers of tacit knowledge. Jo Y. and Lee C.-Y.