The impact of science parks on small- and medium-sized enterprises’ productivity distributions: the case of Taiwan and South Korea

In this article, the effectiveness of policy creating science parks is evaluated with respect to small- and medium-sized enterprises (SMEs). Science parks created to support innovation and regional growth often target productivity gains through agglomeration economies. However, spatial proximity of firms may also stimulate selection, less competitive firms being forced to exit, a cluster of high-productivity, surviving firms being observed at the regional level. Empirical studies also show that high- or low-productivity firms or both may spatially sort into a region. Using estimates of firm-level total factor productivity, the science park sorting and selection behavior of Taiwanese and South Korean SMEs is analyzed. The results indicate heterogeneity in location choice of SMEs arising from the economic environment of science parks. Overall, the empirical evidence suggests that science parks can generate real productivity improvements if the incentives are reinforced through national-level policies; otherwise, such incentives may end up protecting inefficient firms.