The Spillover Effect of R&D on the Manufacturing Industry in Taiwan Metropolitans

Abstract

The literature of new growth theory regards Research and Development (R&D) as a crucial factor in economic growth. This is because R&D not only improves production technology, but also because of its significant externality (spillover) effects on other firms. This paper employs the model developed by Berliant et al. (J Econ Theory 104:275–303, 2002) to examine the externality of R&D within industries closely associated with the spatial distribution pattern of firms in Taiwan’s Metropolitan Areas. Both the mean travel time (to represent the distances) and an overall dispersion are incorporated in this examination of the externality effect. The paper also employs quantile regression techniques to estimate the effects of agglomeration at various quantiles of production value. Based on the data collected by the Taiwan Area Industrial Census for 2001, this research considers all manufacturing industry and two-digit standard industry classification data of manufacturing industries to analyze the R&D spillover effect for various metropolitan areas. The paper analyzes the manufacturing industry as a whole. The electrical and electronic machinery industries, a representative of high-intensity R&D industry, and the apparel and accessories and leather industries, as representatives of low-intensity R&D industry, are also considered. This research concludes that there is an externality (spillover) effect of R&D in each metropolitan area for all three categories. Moreover, the research suggests that the medium and large a firm’s scale the higher the spillover effect it receives will be.