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ABSTRACT. This paper is concerned with the impacts of academic knowledge production (human capital, research, and consultancy) on the investment behavior of the manufacturing industry. Beginning with the neoclassical theory of capital accumulation, a multiregional investment model for non‐residential structures and equipment is developed. Within this model, the knowledge impacts of universities are represented by a diffusion function, which takes into account the possibilities of contagious and hierarchical diffusion of knowledge. Special attention has been given to the development of a theoretically sound and empirically operational investment model, and to the identification of spatio‐temporal correlation. The latter has been approached by means of the use of an EGLS estimator, based on a stationary spatio‐temporal Markov scheme for the residual. The main result of the case study relating to the Netherlands is that academic knowledge production has a significant positive impact on investments in equipment which is strongest in the neighborhood of central places (i.e., following a hierarchical diffusion pattern).
Florax et al. (Sun,) studied this question.