Agglomeration externalities: Marshall versus Jacobs

The literature remains inconclusive as to whether Marshallian specialization or Jacobian diversification externalities favor regional innovativeness. The specialization thesis asserts that regions with production structures specialized towards a particular industry tend to be more innovative in that particular industry, as it allows for knowledge to spill over between similar firms. The diversification thesis argues that knowledge spills over between different industries, causing diversified production structures to be more innovative. A closely related debate evolves around local competitiveness hypotheses. Using an original database of innovation counts, both these issues are addressed for the Dutch context. The results show that the Marshallian specialization thesis holds, though more pronounced for R&D intensive and small firms. Fierce local competition within an industry negatively affects innovativeness in that particular industry.