Firm Size and Capabilities; Regional Agglomeration and the Adoption of New Technology

Date of Original Version



Working Paper

Abstract or Description

The literature on agglomeration economies suggests that, in addition to firmspecific attributes, the local geographic context conditions the expected profitability of technology adoption. All theories of technology diffusion assume that inter-firm learning is the outcome of contact with prior adopters. Yet, with few exceptions, the attributes of location that maximize the opportunities for learning (and hence, reduce the costs of technology adoption for all firms in the same locale) have been given only cursory treatment. In this paper, we develop and test a model in which both firm-specific capabilities and place-specific external economies affect the firm’s decision to adopt a new technology. Our data come from two national surveys conducted in 1987 and 1991. Because we have information on two different time periods, we are able to specify firm and place-specific conditions that precede the technology adoption decision. We find that localization (as measured by regional clustering of enterprises in related industries) and urbanization (as measured by the diversity of industries, and by the concentration of degree granting engineering institutions) provide knowledge spillovers that facilitate the adoption of new technology by local establishments. Moreover, the impact of urbanization economies is size-related: The impact of a diverse region on adoption is even greater for small enterprises than for large ones.