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Good neighbors, bad neighbors: local knowledge spillovers, regional institutions and firm performance in China

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Abstract

Recent evolutionary economic geography studies have stressed technological relatedness as a key explanatory factor for regional industrial diversification. It is further argued that firms that manufacture products with dense connections to regional industrial structure benefit the most from local knowledge spillovers and thus should grow faster. Based on a firm-level dataset on China’s manufacturing industry over the 1998–2008 period, our results indicate that the density of links between a firm’s products and local industrial structure does yield firm performance enhancing spillovers. We further decompose the overall density indicator and point out the lack of connections between firms of different ownership types in terms of information exchange and technological diffusion. Finally, empirical results confirm that regional institutions play a critical role in the spillover diffusion between firms of different ownership structures.

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Notes

  1. The geographical unit of analysis is China’s prefectural level city, which is seen as a region in our empirical investigation. Prefectural level cities are administrative subdivisions of provincial-level divisions. China consists of 333 prefectural level cities.

  2. lnDensity_all is lnDensityf,i,c,t1 in Equation (4)—the density indicator calculated using Equation (3). lnDensity_SOE, lnDensity_POE and lnDensity_FOE are variants of lnDensity_all, which will be explained later.

  3. Due to space limitation, only the estimation results for the baseline model are reported here. Other results are available on request.

  4. Due to space limitation, estimation results for these robustness checks are not reported here, but available on request.

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Acknowledgements

This work was supported by the Natural Science Foundation of China [grant number 41425001, 41701115, 41731278].

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  1. College of Urban and Environmental Sciences, Peking University, Beijing, 100871, China

    Shengjun Zhu, Canfei He & Qian Luo

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  1. Shengjun Zhu
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  2. Canfei He
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Correspondence to Canfei He.

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Zhu, S., He, C. & Luo, Q. Good neighbors, bad neighbors: local knowledge spillovers, regional institutions and firm performance in China. Small Bus Econ 52, 617–632 (2019). https://doi.org/10.1007/s11187-017-9975-2

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