Knowledge Externalities and Knowledge Spillovers in Social Networks: The Case of Izmir Metalwork Industrial District

Abstract

Social networks are the networks based on relationships between social entities. Since social interactions are directly associated with externalities, these relationships are assumed to create opportunities for the network members by providing especially knowledge flows. In this context, the main objective of this study is to show the role of knowledge externalities in social networks. By following this aim, some theoretical derivations are delivered and survey results in a small-world network are explained. Consequently, after a brief introduction, the first section of this study consists of a theoretical model derived by including knowledge externalities in social networks. In the second section, a survey applied in Izmir Metalwork Industrial District is explained. Finally, in the third section, survey results are presented and then conclusions and discussions for further research are revealed. Contributions of this study to the related literature are three-fold. Firstly, knowledge externalities are added to the models of knowledge flows in social networks explicitly. Secondly, a questionnaire trying to measure knowledge spillovers and knowledge externalities separately is introduced and applied for the first time in the literature. Finally, such an analysis is the first for Izmir which is the third metropolitan city of Turkey.

Notes

Scitovsky (1954) classified external scale economies as pure (technological) and pecuniary external scale economies. In pure external economies assuming perfectly competitive markets, industry-wide output improvements affect technological relationships between inputs and outputs of firms. Furthermore, an industrial increase in output improves each firm's knowledge stock by positive externalities. However, externalities are reflected to the firms by the price mechanism in pecuniary external economies assuming imperfect competition (Brakman et al., 2003, pp. 26–28). Pure and pecuniary knowledge externalities are also classified as to the periods in those they are influential. In this context, static knowledge externalities influence output levels, total factor productivity (TFP), behaviours and decisions of firms and industries in the same period. However, dynamic knowledge externalities occur in previous periods and influence output levels, TFPs, behaviours and decisions of firms and industries of current period. Hence, a cumulative process is valid about dynamic knowledge externalities (Henderson, 2003, pp. 3–4).

The most recent data issued by Turkish Statistical Institute on Turkish NUTS2 regions is for 2008.

Izmir Metalwork Industrial District has been operating since 1985. In 1997, it had an administration board in the context of law of property and hence, it has been operating as a small industrial district since then. It is a part of the ESTIM Industrial Zone in which mainly two basic industries (furniture and metalwork) operate. Lots of SMEs are also in business in different kinds of industrial activities such as food, textile and marble and stone, but their amount is very low to construct different industrial areas inside the boundaries of ESTIM Industrial Zone. Nearly 130 firms are in business and 5000 persons employed in Izmir Metalwork Industrial District. For further information, please visit http://estimsanayisitesi.com/en-US/Content/12/corporate.

Types of activities to obtain knowledge spillovers from innovators have been classified as: joint use of patent, industrial design, useful model and brand; joint R&D activities; transfer of managers or technical personnel; taking courses or seminars; purchasing data and others. These are paid activities and hence, they are classified under knowledge spillovers according to transaction costs approach in the Knowledge Governance Theory. These are mainly in the context of new technological knowledge share as proposed in Antonelli (2008). Moreover, the types of benefits got from knowledge externalities have been classified as: getting new ideas; enhancing similar production processes in their own productions; developing similar products; higher demand of innovators for their goods and services; setting new relations as a result of newcomers to the market who desire to benefit from innovations in this area; decreasing input prices; others. These are non-priced benefits for the firms and they reflect the enhancement of their knowledge pools by the courtesy of leakages in the market.

Company names have been kept confidential in this study.

Knowledge externalities are classified as: MAR knowledge externalities, Jacobs knowledge externalities and Porter knowledge externalities, according to their sources. MAR externalities are based on specialization; Jacobs externalities are based on diversity in economic activities and Porter externalities are based on local competition. Industrial agglomeration and network relationships are crucial in all three kinds of knowledge externalities (Glaeser et al., 1992, pp. 1127–1131).