Who Benefits from being Co-located in an Industrial District?

It is argued since Marshall (1920) that positive externalities such as labor market pooling, input sharing, and knowledge spillovers accrue to firms that are co-located. As a result, these agglomeration economies should be a stimuli for the innovation capabilities of firms that embed themselves within industrial districts or at least favour those firms within one that are best able to appropriate the returns. For firms it is about gaining access to the flow of ideas, people and resources and subsequently the ability to appropriate their returns in order to benefit from co-location in an industrial district. This paper focuses on the Leiden Bio Science Park, an industrial district in the Netherlands that exclusively holds organizations active in or related to life sciences, in order to build a case study and find out which elements are important for firms to benefit from being co-located within an industrial district. In this study, the proxy for benefitting from co-location is the firm’s embeddedness in the Leiden Bio Science Park through connections. The results show that firms that interact with public research institutions are more embedded in the LBSP then do firms that do not interact with these institutions. Also, the firms that balance their external knowledge sourcing, by both using internal and external sources, benefit relatively more compared to choose to focus their knowledge sourcing. Firms that are larger in size are more embedded within the relevant local structures. A small group of LBSP firms command central position in the network of local connections, which puts them in a beneficial position within the informal and formal local social network. This group is also the biggest contributor to revitalizing the local pool of knowledge.