Geography Reference
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little application in the economics of knowledge, as the literature has explored more
systematically the consequences of knowledge non-appropriability in terms of 'direct
interdependence' non-mediated by the market mechanism. It seems in fact clear that the
new growth theory and the large empirical literature initiated by Zvi Griliches (1979 and
1992), with the notion of technological spillovers, elaborate on the notion of 'technologi-
cal externalities'.
This chapter explores an alternative analytical path, based on the notion of pecuniary
knowledge externalities. Because pecuniary knowledge externalities apply to studies not
only of production functions but also of cost and revenue functions, they provide a novel
and fruitful tool that makes it possible to identify both negative and positive ef ects of the
external context, their interplay and hence the dynamics of the generation of technologi-
cal knowledge. Hence they help the construction of an evolutionary economic geography
(Boschma and Frenken, 2006; Boschma and Martin, 2007).
2. The role of external factors in the localized generation of technological knowledge
In the Arrovian approach, technological knowledge is viewed as the result of a top-down
process (Arrow, 1962a). Scientii c knowledge is generated in universities in the form
of general principles and universal laws. Eventually it may be applied to production
processes so as to feed the generation of new technological knowledge. The bottom-up
approach according to which learning is the main, if not the exclusive, source of knowl-
edge has challenged the Arrovian approach. The resource-based theory of the i rm has
provided the foundations for this approach and has highlighted the key role played by
learning routines in the generation of knowledge. In this approach to the economics of
knowledge the distinction between tacit and codii ed knowledge plays a key role.
The resource-based theory of the i rm presents learning as the joint product of current
activities and hence assimilates knowledge to learning. Edith Penrose (1959 [1995]) iden-
tii es the i rm, its organization and its routines, as the privileged actor in the learning
process. The i rm precedes the production function as its primary activity consists of
the generation of new technological knowledge. Each i rm, as is well known, learns and
builds up new capabilities and eventually discovers new possible applications for produc-
tion factors and competences that are found within its own boundaries. According to
the resource-based theory, in other words, innovative i rms are successful when they try
to make the most ef ective use of production factors that are not only locally abundant,
but also internally - within its own boundaries - abundant (Foss, 1997 and 1998). The
bottom-up approach to understanding the dynamics of knowledge highlights the role of
internal learning processes, as the necessary and sui cient condition for the generation
of new knowledge at large (Foss and Mahnke, 2000).
The economics of localized technological change make it possible to implement the
resource-based theory of the i rm and hence bring a bottom-up approach to the econom-
ics of knowledge in two cardinal ways: (1) qualifying the conditions for generation as
being shaped by the localization of the learning process; (2) emphasizing the contribu-
tion made by intentional decision making that stems from the creative reaction of inno-
vative i rm. Let us analyse them in turn.
The Penrosean analysis of the key role of learning in the generation of technological
knowledge and in the introduction of technological changes has been greatly quali-
i ed and sharpened by the insight of Anthony Atkinson and Joseph Stiglitz (1969) who
