Aerospace Clusters: Local or Global Knowledge Spillovers?

Industry and Innovation, Mar 2005 by Niosi, Jorge, Zhegu, Majlinda

1.2. Centrifugal Factors

Even if a growing literature relates local knowledge spillovers and regional agglomeration of industry, another current tends to emphasize the international dispersion of industrial activity. The latter current links cross-border externalities with the increasing internationalization of economic activity. Through foreign direct investment (FDI), foreign patenting, international R&D collaboration and international trade, knowledge flows across borders have increased exponentially in the postwar period (Coe and Helpman, 1995; Baldwin et al., 1999; Xu, 2000). The theory and measurement of these international externalities is as recent and unstable as the concepts and dimensions of regional spillovers (Branstetter, 2000). However, some of the mechanisms of these spillovers are already known, such as face-to-face meetings involved in both FDI and international alliances as well as the international transfer of blueprints, manuals and personnel.

International spillovers are not the only factors that disperse industry across nations. The product life cycle theory postulates that, as process technology becomes more standardized and non-proprietary, dominant designs appear, and markets become global, companies start competing on the basis of price. They tend to locate in nations where costs are lower and new markets for mature products are still open (Vernon, 1966). Thus, new products are normally launched in developed nations, where consumers are more affluent and ready to take risks in the acquisition of novel goods and services. As average costs decline, products are first exported to other affluent nations, and then to the more advanced new industrializing countries. Production follows markets, as the innovators create foreign facilities in order to restrain the entry of competitors from low cost regions. Alternatively, they can outsource parts and components in less developed nations, thus taking advantage of lower costs and being exposed to lower risks than through FDI.

Agglomerations of high-technology firms are not necessarily regional innovation systems. From the abundant theory and studies on multinational corporations, we know that advanced technology products may have been designed and developed in one area (or several geographic areas) and produced in other regions. These include pharmaceutical products that large multinational corporations develop in numerous expatriate laboratories located in different countries (Taggart et al., 2001). Also, both aircraft and telecommunication equipment may be developed in one or several locations, offering advantages for R&D, and produced in other locations with comparative advantages for production. Thus, regional agglomerations of aircraft firms may exploit some local advantages (including cheap workforce, tax credits or government subsidies) without major interaction and learning processes going on within the region. Also, clustering may occur because of the existence of a specific advantage in a region, such as a labour pool or government incentives.