The Rise (and Fall) of Tech Clusters

Sergey Kichko, Wen-Jung Liang, Chao-Cheng Mai, Jacques Thisse, Ping Wang and Sergei Kichko

No 8527, CESifo Working Paper Series from CESifo

Abstract: Tech clusters play a growing role in knowledge-based economies by accommodating high-tech firms and providing an environment that fosters location-dependent knowledge spillovers and promote R&D investments by .rms. Yet, not much is known about the economic conditions under which such entities may form in equilibrium without government interventions. This paper develops a spatial equilibrium model with a competitive final sector and a monopolistically competitive intermediate sector, which allows us to determine necessary and sufficient conditions for a tech cluster to emerge as an equilibrium outcome. We show that strongly localized knowledge spillovers, skilled labor abundance, and low commuting costs are key drivers for a tech cluster to form. Not only is the productivity of the final sector higher when intermediate firms cluster, but a tech cluster hosts more intermediate firms and more R&D and production activities, and yields greater worker welfare, compared to what a dispersed pattern would generate. With continual improvements in infrastructure and communication technology that lowers coordination costs, tech clusters will eventually be fragmented.

Keywords: high-tech city; knowledge spillovers; intermediate firm clustering; land use; commuting; R&D (search for similar items in EconPapers)
JEL-codes: D51 L22 O33 R13 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-cse, nep-geo, nep-ict, nep-knm, nep-sbm, nep-tid and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_8527

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