Knowledge spillover among Italian cities: the impact of youth entrepreneurship and high-tech firms on cities attractiveness

Knowledge transfer, exchange and circulation

Knowledge spillover among Italian cities: the impact of youth entrepreneurship and high-tech firms on cities attractiveness

Filippo Marchesani, Francesca Masciarelli

Economics and economic geography have progressively focused on the role of spatial and network ties regarding human and intellectual capital and relate them to innovation and economic growth.

Within economic debates, explanations regarding the regional development highlight the role played by knowledge generation, knowledge inputs and knowledge spillovers in location processes (A. Faggian and McCann 2009b; D’Agostino 2019). However, these knowledge processes are usually viewed from two different perspectives depending on the strand of literature employed, the first one being the agglomeration and clustering literature, and the other in the urban systems literature.

On the other hand, the urban systems literature (Holmes et al. 2000), which supports the central-place theory (Mulligan, Partridge, and Carruthers 2012; Warnes and Daniels 1979), considers these knowledge processes to be primarily an inter-regional macro-phenomenon, in which the geographical mobility of physical capital in terms of firms (Knoben and Oerlemans 2008) and human capital in terms of labor (2009; B. A. Faggian and Mccann 2006), determine the revealed patterns of economic geography. The agglomeration and clustering literature perceives the knowledge processes like a primarily local intra-regional micro-phenomenon in which the accent is on a large number of interactions between agents within a spatially constrained environment (A. Faggian and Mccann 2009). These interactions affect the local development in terms of knowledge exchange (Caragliu and Nijkamp 2016), industrial clusters (Iammarino and McCann 2006), R&D investments (Abramovsky and Simpson 2011) and innovation (Capello and Faggian 2005).

In the following work, we aim to estimate the impact of high-tech firms in the Italian cities on knowledge spillover measured by students’ mobility. In this study, we will use the ordinary least-squares (OLS) to verify the research framework and hypotheses. Moreover, we aim to evaluate the moderating role of youth entrepreneurship in this relation. The preliminary result shows that city attractiveness in terms of students’ mobility is affected by the capability of the cities to generate and promote innovation in terms of high-tech firms. Moreover, we found that a greater presence of youth entrepreneurship in the city, in addition to a high number of high-tech firms, could moderate the aforementioned relation.

Governments, organizations, and society in terms of public institutions have become increasingly aware of the crucial role of higher education in the performance of the economy. Although, education is the most easily determined form of human capital.

For understanding the role played by human capital in economic development, it is important to base on the new growth theories. One of the most important theories was made by Romer (1986, 1990, 1994) who first formally examined the role of knowledge in growth from the perception of the public good aspect knowledge spillovers, and this type of approach has been a starting point in the agglomeration literature. Moreover, the role played by knowledge externalities linked with human capital was also supported by Lucas (1988).

To connect human capital and regional development, an important role was played by the university. In fact, there is a wide variety of literature that examines the role of universities related to economic growth. As already specified, universities play a key role as producers of creative and high human capital that is embodied in their graduates and their staff and this fact impacts the regional economic growth (Richard Florida 1995; Lee, Florida, and Gates 2010; Sedlacek 2013). In addition, several researchers have also argued that universities can be a contributor to growth as a source of knowledge spillovers (Coe et al. 2004; A. Faggian and McCann 2009a; Goldstein and Drucker 2006). Universities are assumed to be important sources of localized knowledge spillovers due to their explicit focus on the generation and diffusion of knowledge.

The impact of knowledge spillover on regional development and the crucial role of the university in this phenomenon has assumed a great level of importance within the last years. As long ago as 1890, Marshall argued that geographical proximity promotes knowledge spillovers that benefit firms’ knowledge production— i.e., positive externalities in the form of ideas (Marshall 1890). The production of knowledge in the local geographical environment affects the ability of firms to introduce innovations based on new ideas.

Across-region students’ mobility in terms of university enrolment of national and international students is crucial to study because the human capital of new generations is one of the most important areas for exploration and development in advanced economies. King & Ruiz-Gelices (2003) pointed out that worldwide student migration is an increasingly important phenomenon that needs attention from both policy and research points of view. In addition to that, Dustmann & Glitz (2011) stated that education and migration are so closely linked that it is almost impossible to separate them from each other. This linkage represents an important prospect of growing in terms of knowledge and regional development.

In particular, from the student perspective, mobility can be considered as an opportunity. For instance, Faggian and McCann (2009a) studied the migration flows of students in Great Britain and outlines a positive and cumulative connection between the relative economic well-being of destination regions and the scale of human capital net inflows. Furthermore, these flows can generate significant inequality in different geographical areas within and across countries (Baryla and Dotterweich 2001; Xiang and Shen 2009). In other words, while student migration has a recognized positive effect in destination regions, it may also give rise to larger regional disparities (Krugman 1991).

In many countries, it is often the case that the more developed regions attract students for several reasons such as adequate services and infrastructure (Camagni 1992), a high level of amenities (Richard Florida 1995, 2002) and greater social well-being (Mak and Tran 2001; Sage, Evandrou, and Falkingham 2013), but also because they provide appropriate labor market conditions that, in turn, ensure more employment opportunities after graduation (Iammarino et al. 2011; Marinelli 2013).

Therefore, an important consequence of this migration regarding the areas that suffer a constant outmigration of better and/or wealthier students must endure a substantial decline in their human capital, whereas attractive areas benefit from the in-migration. Moreover, outmigration can prevent the development of high-quality universities and other institutions in the areas that people tend to leave (Gribble 2008; Mchugh and Morgan 1984). We can assume that this link between the university and the local areas in terms of human capital represents a fundamental factor of economic growth.

Related to economic growth, several studies estimate the influence of knowledge spillover on regional development linked to innovation and new firms’ development.

Concerning the connection between knowledge spillover and innovation, the majority of literature is based on patents and R&D as indicators of innovation. For instance, Jaffe et al. (1993; 2000) have analyzed the geographic location of patent citations in order to prove that knowledge spillovers are geographically localized. Moreover, Maurseth and Verspagen (2002) conducted similar research for knowledge spillovers between European regions and got to the same conclusion. By tracking patent citations these studies fixated on the exchange of explicit knowledge. Concerning R&D, Harabi(1997) investigated the effectiveness of different channels of R&D spillovers at the intra-industry level. The study observed R&D activities, reverse engineering, publications, technical meetings, interpersonal communication and patent disclosures as possible channels for knowledge spillovers. The aforementioned study suggests that a firm’s investment in R&D is the most important channel for spillovers.

Related to new firms’ development, Arselin (2000) observed that university spillover effects are significantly stronger when there is a critical mass of high technology firms. Furthermore, in terms of high-technology firms, Bania et al. (1993) found that university spillover facilitates only a specific type of start-up. Similarly, De Silva and McComb(2012) stated that proximity to a research university only somewhat increases the probability of high-technology start-up, however, this research has not taken into consideration the survival of new firms.

Moreover, Florida and Kenney (1992; 1988) used venture capital data to document the geographic patterns of high-tech entrepreneurship and the social structures of innovation fixed by a venture capitalist that supports such geographically organized social structures of innovation. In particular, Florida (2002) recognizes the crucial role of HEIs in attracting creative individuals, but this link is not fully developed and relies generically on the association between the creative class and the high level of human capital. In terms of public policy (A. Faggian, Comunian, and Li 2014; Glaeser 2000; Porter 2003) it was simply pointed out that universities can play a role in knowledge transfer and development of the creative economy.

Several studies observe the impact of knowledge spillovers on high-tech firms and how they facilitate the creation of new firms. This paper aims to comprehend how much the attractiveness of the city, measured by the high-tech firms number, is capable of attracting human capital. Based on this relation we suggest that city attraction is related to the high-tech startups and we hypothesize the following (HHI: Cities with more high-tech firms are more likely to attract human capital in terms of university students).

Another important aspect of the development of the territory is the ability to attract and train young entrepreneurs (Chigunta 2002). It is widely accepted that there are many good reasons to promote entrepreneurship among young people. While caution should be exercised so that entrepreneurship is not seen as a ‘mass’ or comprehensive solution which can cure all economic problems, as many experts such as Curtain (2001) warn, it has several potential benefits. An obvious, and perhaps a significant one, is that it creates employment for a young person who owns a business. Many experts believe that this could bring back the youth unemployed into the economic mainstream (Ginzberg 1980; Richard 2000). There may also be a direct effect on employment if new young entrepreneurs employ more youth employees and a new workforce. (Richard 2000). Another perspective of entrepreneurship is from new and dynamic businesses (Drucker 1985) that have great economic impacts. The approach to entrepreneurship in this research is based on new business formation by entrepreneurs, especially the creation of innovative and high-tech firms that contribute significantly to regional economic development. In sum, youth entrepreneurship impacts the city attraction in terms of new opportunities and job satisfaction, and we hypothesize the following (HHII: The existence of a large number of youth entrepreneurs in the cities influences the relationship between high-tech firms and students’ mobility).

Across-region students’ mobility in terms of university enrolment of students is crucial to study because the human capital of new generations is one of the most important areas for exploration and development in advanced economies (D’Agostino 2019). In this study, we aim to observe how the presence of high-tech firms and youth entrepreneurship influences the city attractiveness in terms of students’ mobility in order to create new human and social capital.

#Agglomeration Economies #Economic Development #Human Capital #innovation #Knowledge Spillover #Universities