Network of regions and economic performance – an analysis of the macroeconomic impact of the structure of interregional knowledge networks

Abstract

Literature on economic growth emphasizes the importance of knowledge accumulation in long term development. However, regarding both its generation and diffusion, knowledge is not independent of the network structures interconnecting the individual actors of the economy. Theoretical and empirical studies of networks have shown that the structure of networks is an important determining factor of the aggregate performance of these networks. First, the notion of ‘small world’ networks was coined emphasizing that real-life networks retain local cohesion while ‘bridging ties’ contribute to short paths into the network. Further empirical evidence showed that these networks show asymmetric degree distributions with few central actors and many peripheral ones. These macro structures are shown to affect the performance of networks. However, there is no study which examines the effect of the structure, through which the spatial units of a country are linked together, on aggregate economic outcome. This specific aspect is examined in this study where network structure is regarded as the map of knowledge flows between NUTS3 statistical regions of the EU. We introduce the methodological basis for the analysis of network structure and use this methodology in order to analyse the relationship between the intranational knowledge network structure and economic output of the 27 EU countries. The networks refer to interregional patent innovator networks which were identified using OECD patent statistics. This method gives our study a regional perspective. Our results suggest that higher levels of proximity among regions and more pronounced scale-free properties (centre-periphery structure) contribute to a higher level of economic output per capita. This indicates that interpersonal proximity as well as strong knowledge centres are important building blocks for an efficient system of interregional knowledge flows.