The capability-enhancing role of government-driven industrial districts for new technology-based firms in South Korea

Abstract

Government-driven industrial clusters have attracted considerable attention from academic research as well as practical fields, mainly because of their contributions to regional economic growth and sustainable innovation performance. This article investigates the impact of government-driven industrial districts on the efficiency of new technology-based firms in information and communications technology industries. Using a meta-frontier analysis with a unique Korean start-up dataset, we find that the government's provision of industrial districts increases firm efficiency level compared with that of others outside the districts. Specifically, being located in industrial districts not only improves the efficiency of individual start-ups but also positively affects the maximum efficiency levels that firms can achieve. Our findings suggest that locational support by public administration, such as utility infrastructure, tax benefits and inter-firm informal network opportunities, enhances firms' dynamic capability to search for and combine resources to create new markets and innovations, especially for newly established technology firms.