Centre for Development Economics
Department of Economics, Delhi School of Economics


Spillovers, Absorptive Capacity and Agglomeration


Sergey Lychagin
Central European University

Thursday, April 19, 2012 at 3:00 p.m.

Venue : AMEX Conference Room (Second Floor)
Department of Economics, Delhi School of Economics

All are cordially invited


I study knowledge spillovers in an industry where rms are mobile and heteroge-neous in their ability to adopt outside knowledge (absorptive capacity). I develop a static model of industry agglomeration where, in equilibrium, the force of attraction induced by spillovers is counteracted by the force of repulsion created by local com-petition. The model is applied to a sample of the US software rms. I estimate the structural parameters of the model and obtain the following results: (a) The data are consistent with highly localized knowledge spillovers; (b) The attraction force induced by spillovers creates a signi cant sorting pattern placing rms with higher absorptive capacity in more agglomerated counties; (c) Ignoring rm heterogeneity in absorp-tive capacity leads to substantially biased estimates of gains from spillovers in policy experiments.

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