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To cite this article: Roberta Capello & Alessandra Faggian (2005) Collective Learning
and Relational Capital in Local Innovation Processes, Regional Studies, 39:1, 75-87, DOI:
10.1080/0034340052000320851
C R. and F A. (2005) Collective learning and relational capital in local innovation processes, Regional Studies
39, 75–87. Innovative capacity of firms has traditionally been explained through intra-firm characteristics. In the more recent
literature, much emphasis has been put on determinants that are external to the firm. These external factors, called knowledge
spillovers, refer to the positive externalities that firms receive in terms of knowledge from the environment in which they
operate. Geographers and industrial economists underline the importance of knowledge spillovers. As the paper underlines, an
important difference exists between the approach of knowledge spillover and that of socialized processes of local knowledge
creation developed by regional economists; while in the former, the mere probability of contacts explains local knowledge
transfer, in the latter, the channels through which knowledge spills over a local area are clearly identified in the relational capital
of the area. Relational capital is defined as all relationships – market relationships, power relationships and cooperation –
established between firms, institutions and people, which stem from a strong sense of belonging and a highly developed capacity
of cooperation typical of culturally similar people and institutions. The main aims of the paper are twofold. The first is to
underline the major conceptual differences between industrial and regional economists. The second is to provide a quantitative
empirical approach, using econometric techniques, to verify the existence and importance of relational capital on the innovation
activity of firms. Proxies are found to represent the channels through which local knowledge develops at the local level and
therefore indirectly of relational capital. The different regional, sectoral and firm characteristics are also analysed to understand
whether they influence the role relational capital has on innovation. It is indeed reasonable to expect that relational capital will
play a different role in different regional, sectoral and firm’s contexts.
Collective learning Local knowledge Endogenous local economic development Relational capital
C R. et F A. (2005) L’apprentissage collectif et le capital relationnel dans les processus d’innovation locale,
Regional Studies 39, 75–87. Traditionnellement, la capacité à l’innovation des entreprises s’explique par des caractéristiques intra-
entreprises. Dans la documentation plus récente, on met plutôt l’accent sur les facteurs externes. Ces facteurs externes, appellés
retombées de connaissance, traduisent les effetes externes positifs dont profitent les entreprises en termes de la connaissance qui
provient du milieu où elles opèrent. Les géographes et les économistes industriels soulignent l’importance des retombées de
connaissance. Comme le souligne l’article, il y a une importante différence entre l’approche de retombées de connaissance et
l’approche qui met l’accent sur les processus socialisés de la création de la connaissance locale, développée par des économistes
régionaux. Alors que dans celle-là, c’est la probabilité de se faire des contacts qui explique le transfert de la connaissance locale,
pour ce qui est de cette dernière, ce sont les canaux par lesquels la connaissance s’étend à une zone locale qui se voient
clairement identifier dans le capital relationnel de la zone. Le capital relationnel veut dire tous les rapports – rapports de marché,
rapports de pouvoir, partenariat – établis entre les entreprises, les institutions et les individus, qui proviennent d’un fort sentiment
d’appartenance et d’une capacité à la coopération très développée, qui caractérise des individus et des institutions qui se
ressemblent du point de vue culturel. L’article cherche primo à souligner les principales différences conceptuelles entre les
économistes régionaux et industriels, et secundo à fournir une approche empirique quantitative, employant des techniques
économétriques afin de vérifier la présence et l’importance du capital relationnel pour l’innovation des entreprises. On emploie
des variables muettes afin de représenter les canaux par lesquels la connaissance locale se développe sur le plan local et, par la
suite, indépendamment du capital relationnel. On analyse aussi les diverses caractéristiques des régions, des secteurs et des
entreprises pour comprendre si, oui ou non, elles influent sur le rôle du capital relationnel quant à l’innovation. Il est fort
probable que le rôle du capital relationnel varie suivant le contexte de la région, du secteur ou de l’entreprise.
Apprentissage collectif Connaissance locale Développement économique local autochtone Capital relationnel
local firms belonging to different sectors of origin and mobility of local labour market10 and the cooperation
only 18% from firms belonging to the same sector. with local suppliers, have a positive and significant
As far as the importance of local suppliers on innova- effect. Moreover, R2 rises from 0.19 to 0.28. An F-test
tion is concerned, the average scores are low. The has also been carried out to test the overall significance
minimum is 1.8 in Piacenza, followed by Milan (3.9) of the models.
and Cadore (4.9). The problem is in understanding if The result supports the initial hypothesis, i.e. the
these low values reflect the actual unimportance of importance of relational capital variables in fostering
suppliers or rather the misperception of their impor- the innovative performance of a firm. Regional eco-
tance by the interviewed managers. nomists are therefore correct in underlining that not
only are intra-firm characteristics crucial for innova-
EMPIRICAL RESULTS tion, but also (and maybe most of all) that the location
of firms in an area where the local labour market and
Role of relational capital in fostering innovation the tight links with suppliers foster the exchange of
As mentioned above,9 the productive structure in the local knowledge are vital for innovation. This seems to
areas selected as case studies is very different. To test hold no matter where firms are located, although, as
whether relational capital should play a crucial role in will be shown, with different features from one case to
fostering innovative activities irrespective of location, the other.
the internal characteristics of a firm and sector, the The last two columns in Table 4 show two further
starting point was the estimation of the same econo- models in which a dummy variable for high-technology
metric model for all firms included in the database firms was introduced to test if there was a substantial
(pooling) without any distinction of location, size or difference between high-technology and traditional
sector. firms. The dummy is statistically insignificant when the
The first step was the estimation of the relationship model is tested on the total sample, but becomes
between ‘intra-firm’ characteristics and degree of inno- significant if the Cadore case is dropped and Milan and
vation. The second step was then to introduce, in the Piacenza are only considered. This may be partly due
same model, some relational capital variables to test to the lack of variance in the sectorial composition of
their significance. Table 4 shows the results obtained. the firms in the Cadore area, almost all belonging to
Both relational capital variables, i.e. the interfirm the same sector.
Notes: Dependent variable: degree of innovation (per cent of turnover from sales of new products – last 5 years).
*Student’s t-test is in parentheses.
F-test is 9.47 when passing from model 1 to 2, and 7.95 when passing from model 2 to 3. Both values are significant at the 0.01 level.
Collective Learning and Relational Capital in Local Innovation Processes 83
Relational capital and innovative activity in the three coefficient of 0.14 in both models 1 and 2 and a
different areas Student’s t-test of 2.37 and 2.38, respectively (Table 5).
Furthermore, a more detailed analysis of the compo-
Once it is shown that relational capital does play a
nents of local labour market shows something very
crucial role in innovation, it becomes interesting to
understand better the differences among the areas interesting. In Milan, innovation performance is posi-
analysed. Is it possible to identify specific territorial tively linked to the diversification of the local labour
characteristics that allow the relational capital to be market rather than to its specialization. As models 3
more effective? To answer this question, one can start and 4 in Table 5 show, the variable ‘diversified local
by estimating separate models for the different geo- labour market’ has a coefficient of 0.12 and is highly
graphical areas. Unfortunately, in trying to do so, we significant (2.36 in model 3, 2.33 in model 4), while
had to deal with a high number of missing values for the variable ‘specialized labour market’ is insignificant
the Cadore area in both the dependent and explanatory in model 3 and has been removed in model 4 to test
variables. This reduced considerably the degrees of the robustness of the other coefficients. The economic
freedom and made the results for this area unreliable. meaning of this seems clear. In Milan, there are urban-
Therefore, it was decided to present the detailed analysis ization economies that foster innovation. Also, the
only for the areas of Milan and Piacenza. The Cadore dummy variable for the high-technology sector is statis-
area still contributes to the results obtained when tically significant in the Milan area. Because of the
pooling all the data. Tables 5 and 6 show the results of high specialization encountered in these sectors in
the estimations. Milan, one can easily draw the conclusion that these
In the Milan area, the intra-firm characteristics, i.e. sectors are organized around filières.
small size and high R&D expenditure, are crucial in Piacenza has some similarities to Milan, but also
fostering innovation. As far as the relational capital some peculiar characteristics. In the Piacenza area, as
variables are concerned, the most surprising result is in Milan, the local labour market is the most effective
that cooperation with local suppliers no longer plays collective learning channel with a coefficient of 0.25
an important role in Milan. The local labour market is (even higher than that of Milan), which is highly
the most important collective learning channel with a significant (4.04). Unlike Milan, though, cooperation
Notes: Dependent variable: degree of innovation (per cent of turnover from sales of new products – last 5 years).
*Student’s t-test is in parentheses.
Notes: Dependent variable: degree of innovation (per cent of turnover from sales of new products – last 5 years).
*Student’s t-test is in parentheses.
84 Roberta Capello and Alessandra Faggian
with local suppliers is significant with a coefficient of firm and different sectoral specialization. The calcula-
0.28 and a Student’s t-test of 3.05 (Table 6, model 1). tion results in the following two equations for Piacenza
Moreover, intra-firm characteristics do not play an and Milan, respectively, are as follows:
important role in Piacenza. Models 2 and 3 show
the results, once the local labour market has been (LI/LCR)Piacenzaó0.02DIM ò 0.12QL (2a)
decomposed into ‘diversified’ and ‘specialized’. Surpris- (LI/LCR)Milanó0.01DIM – 0.27QL (2b)
ingly enough, in Piacenza the specialized component
is significant. Both components, indeed, have the same The equations are shown in Fig. 1 (with a logarithmic
coefficient of 0.18, but the diversified one is statistically scale) for different levels of location quotients.
more significant (around 3.0 in both models). It seems, In the Piacenza area, the importance of the special-
therefore, that in the Piacenza area, specialization11 ized local labour market on innovation becomes
rather than urbanization economies are at work. increasingly more important as the location quotients
increase (Fig. 1a). It seems reasonable that firms
belonging to more specialized sectors can exploit the
Relational capital and innovation activity: a comparison specialized local labour market more efficiently to
between firm size and sectoral specialization increase their innovation. Moreover, as shown in Fig.
The last aspect to be considered is how the size of a 1a, the larger the firm, the better it can exploit the
firm and the degree of specialization of a sector can local labour market.
affect the effectiveness of relational capital in fostering In Milan, conversely, the capacity to exploit the
innovation. The following model has been estimated diversified local labour market decreases as the location
separately for Milan and Piacenza to analyse the quotients increase. Firms belonging to less specialized
problem: sectors can exploit better the ‘variety’ of the local
labour market. They localize in the Milan area to
IóaòbDIMòcCR*DIMòdCR*QLòe (1) exploit a wider pool of potential employees with
where I is the degree of innovation of a firm, DIM is differentiated characteristics and abilities.12 Moreover,
the size of a firm (turnover), CR is relational capital as in the previous case, the larger the firm, the better
(local labour market) and QL is the sectoral location it can exploit the relational capital. As shown in Fig. 1b,
quotient. location quotients being equal, larger firms exploit
As proxy for the relational capital (CR), the most better the diversified local labour market.
significant variable in the regressions presented above Similar results are presented in Fig. 2 (with a logarith-
is chosen, i.e. the diversified local labour market mic scale), where equations (2a) and (2b) were calcu-
in Milan and the specialized local labour market in lated for different location quotients. The importance
Piacenza. The results of the estimation of equation (1) of relational capital on innovation increases as size
are presented in Table 7. increases in both Milan and Piacenza. The difference
Differentiating equation (1) with respect to size is that, given a certain firm’s dimensions, the impor-
(DIM) and the location quotient (QL), it is possible tance of relational capital increases with location
to evaluate the effect of relational capital on innovative quotients in Piacenza (specialization economies) and
capacity of a firm for different dimensional levels of a decreases in Milan (urbanization economies).
Fig. 2. Role of sectoral specialization: (a) Piacenza and Fig. 3. Role of firm size: (a) Piacenza and (b) Milan
(b) Milan
opening the spillovers ‘black box’ and testing empiri-
From an empirical point of view, the paper shows cally some very abstract concepts, further developments
the importance of relational capital on the innovative can be added in the future. First, additional indicators
capacity of firms. The presence of relational capital is looking at different aspects of relational capital can be
measured indirectly via the collective learning channels, devised and used to test the consistency of the results.
which are believed here to represent the contents of Further, a second round of interviews with local cor-
the knowledge spillovers ‘black box’. porate decision-makers and industry-watchers could
Identifying the mechanisms through which know- provide a deeper understanding of some more general
ledge spills over the space is not only important from local socio-cultural factors that are strictly linked with
a theoretical point of view, but also it is fundamental the concept of relational capital.
when formulating useful and effective policies. As
A (1996, p. 139) underlines, NOTES
although knowledge spillovers between firms play a
1. On the concept of ‘social capital’, see P (1993),
critical role in the evolution technology little is known
G and V B (2001) and S
about such spillovers. . . . By understanding the mecha-
(2002).
nisms and determinants of knowledge flows, company
2. In this respect, we refer to the contrasting empirical
managers and public policy makers can influence know-
results traditionally obtained by industrial economists on
ledge diffusion more effectively.
the role of the physical dimension of firms on innovative
Underlining the crucial role of the local labour activity (e.g. A and A, 1993; L
market as a channel for spreading knowledge, the and S, 1991; S-L, 1986;
present paper shows how important it is for the govern- P et al., 1987; R, 1989).
3. When dealing with knowledge spillovers, we refer to
ment to implement policies that both improve the
J (1989) as a seminal work, followed by, among
quality of local labour market and foster the mobility others: A et al. (1994), dealing with the capacity of
of highly trained employees. large versus small firms to exploit knowledge spillovers;
Lastly, policies to encourage cooperation with local A and F (1996) and F and
suppliers and customers should be implemented, since A (1999), dealing with the importance of
both are important to the innovative capacity of firms. diversified versus specialized knowledge spillovers; and
Although the paper represents a first attempt in A et al. (2000), dealing with the definition of
86 Roberta Capello and Alessandra Faggian
the physical distance over which knowledge spillovers still believe that the results of our empirical analysis are
disappear. For a recent review on the role of knowledge sound and shed light on the main relationships of interest.
spillovers on regional development, see D G et al. 8. This is not surprising since Cadore is an industrial
(2001). district.
4. On the relationship between relational capital and 9. See the end of the section entitled ‘Areas of analysis’.
innovation, see C (1991), K and W- 10. This result is in line with A and K (1999),
(1999, 2000), L and L (1999), who found that interfirm mobility of engineers in the
and C and C (2002). For the concept semiconductor industry in Silicon Valley indeed influ-
of organizational and cultural proximity, see also the enced the local transfer of knowledge among patent
French school on ‘la proximité’ (e.g. R, 1993). holders.
5. Both belonging to the same or to a different sector. 11. Although the terms ‘specialization economies’ and
6. High-technology sectors include: electronics, informa- ‘urbanization economies’ are well known in urban eco-
tion technology, telecommunications, and electric and nomics, note that for specialization economies, we mean
optical machinery economies external to the firm but internal to the sector,
7. The trade-off between the collection of primary data while urbanization economies are external to both the
and sample size is well known to every applied researcher, firm and the sector. The latter arise from the fact that
but it was fundamental for our research purpose not to they are located in a big city.
rely on simple secondary data, but to collect data directly. 12. This is a typical advantage offered by large cities and
Given this choice, the number of observations in our is part of what regional economists call ‘urbanization
sample seems reasonable. Although we are aware that a economies’. For an empirical analysis on urban milieu
much larger sample would obviously be preferable, we effects, see C (2001).
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