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Industrial Agglomeration, Geographic Innovation and Total Factor Productivity: The Case of Taiwan

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Abstract
The paper analyses the impact of geographic innovation on Total Factor Productivity (TFP) in Taiwan. Using 242 four-digit standard industrial classification (SIC) industries in Taiwan in 2001, we compute TFP by estimating Translog production functions with K, L, E and M inputs, and measure the geographic innovative activity using both Krugman's Gini coefficients and the location Herfindahl index. We also consider the geographic innovation variable as an endogenous variable and use 2SLS to obtain a consistent, albeit inefficient, estimator. The empirical results show a significantly positive effect of geographic innovation, as well as R&D expenditure, on TFP. These results are robust for the Gini coefficients and location Herfindahl index, when industry characteristics and heteroskedasticity are controlled. Moreover, according to the endogeneity of geographic innovation, the Hausman test shows that the geographic innovation variable should be treated as endogenous, which supports the modern theory of industrial clustering about innovation spillovers within clusters.

Suggested Citation

  • Chia-Lin Chang & Les Oxley, 2008. "Industrial Agglomeration, Geographic Innovation and Total Factor Productivity: The Case of Taiwan," Working Papers in Economics 08/14, University of Canterbury, Department of Economics and Finance.
    • Handle: RePEc:cbt:econwp:08/14
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    2. Chia-Lin Chang & Michael McAleer & Yu-Chieh Wu, 2018. "A Statistical Analysis of Industrial Penetration and Internet Intensity in Taiwan," Future Internet, MDPI, vol. 10(3), pages 1-26, March.
    3. Fan, Xiaomin & Xu, Yingzhi, 2023. "Does high-speed railway promote urban innovation? Evidence from China," Socio-Economic Planning Sciences, Elsevier, vol. 86(C).
    4. I-Ju Tsai, 2017. "A theoretical assessment on the trading arrangements for a small Asian economy with footloose entrepreneur movement toward China," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 59(2), pages 393-417, September.
    5. Chia-Lin Chang & Michael McAleer & Yu-Chieh Wu, 2015. "Industrial Agglomeration and Use of the Internet," Tinbergen Institute Discussion Papers 15-098/III, Tinbergen Institute.
    6. Chih-Hai Yang & Chia-Hui Huang, 2018. "Agglomeration, ownership, and R&D activity: firm-level evidence from China’s electronics industry," Empirical Economics, Springer, vol. 54(4), pages 1673-1696, June.
    7. Yang, Chih-Hai & Lin, Hui-Lin & Li, Hsiao-Yun, 2013. "Influences of production and R&D agglomeration on productivity: Evidence from Chinese electronics firms," China Economic Review, Elsevier, vol. 27(C), pages 162-178.
    8. Chengliang Liu & Tao Wang & Qingbin Guo, 2018. "Factors Aggregating Ability and the Regional Differences among China’s Urban Agglomerations," Sustainability, MDPI, vol. 10(11), pages 1-20, November.
    9. Chenlu Tao & Jinzhu Zhang & Baodong Cheng & Yu Liu, 2019. "An Assessment of the Impact of Spatial Agglomeration on the Quality of China’s Wood Processing Industry Products," Sustainability, MDPI, vol. 11(14), pages 1-17, July.
    10. Chia-Lin Chang & Michael McAleer & Yu-Chieh Wu, 2016. "Industrial penetration and internet intensity," Documentos de Trabajo del ICAE 2016-06, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
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    More about this item

    Keywords

    Industry agglomeration; Geographic innovation; Total factor productivity; Cluster; Research and Development;
    All these keywords.

    JEL classification:

    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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