Working Paper Series in Economics and Institutions of Innovation,
Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

Abstract: This paper is an introductory overview highlighting some of the current knowledge as regards three critical questions related to the emerging knowledge economy: i) Why does human capital and talent tend to agglomerate in large urban regions?, ii) How does this agglomeration affect the location of different types of economic activities?, and iii) How does this agglomeration affect regional growth? There are different underlying agglomerative forces creating spatially concentrated increasing returns to scale. Also, cities become centres of various amenities due to general increases in real incomes offering people spare time activities. One major reason for the agglomeration of production in urban regions and metro¬politan areas today is the existence of various positive externalities, providing good settings for industries and firms with knowledge-intensive and knowledge-creation activities, specialised business service firms and headquarters of multinational firms. There are strong tentative empirical evidences that the agglomeration of human capital contributes to regional development and growth. However, there is uncertainty concerning the size of the human capital externalities.

Keywords: Human Capital Externalities; Talent; Knowledge Creation; Knowledge Spillover; Agglomeration; Urban Region; Regional Growth

JEL-codes: D62; D83; J24; R12; R23

17 pages, August 26, 2009

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