Heterogeneous firms and cluster externalities: how asymmetric effects at the firm level affect cluster productivity

When firms are heterogeneous, externalities within clusters can affect asymmetrically. These asymmetries at the firm level lead to a productivity effect cluster that has been overlooked thus far. We develop heterogeneous model where with different levels decide how much invest in market survival. With this model, we find differentiation between high-productivity investing survival and low-productivity not Cluster alter optimal investment of firms, which turn affects both composition cluster-level outcomes. By focusing on assuming take form knowledge spillovers, depends particular type spillovers. Using modelling outcomes an extensive numerical simulation, show spillovers reduce cost benefit investing, increase productivity. contrast, imply non-investing, free ride efforts tend discuss ramifications for research policy, highlighting importance industry spillover characteristics.