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The primary focus of this paper is the impact of knowledge creation and innovative activity on non-farm employment growth. Non-farm employment growth is modeled in a stylized model where new knowledge and local economic externalities are key factors driving technology growth. For our empirical application we assume that new knowledge and innovative activity are embodied in new patent filings within the county. To explicitly capture spillovers between counties we apply spatial econometric techniques. The econometric model, based on a 2-stage spatial econometric estimation procedure, is tested for all counties in US Midwestern States of Iowa, Minnesota, Missouri, Kansas, Nebraska, South Dakota and North Dakota. The results indicate the positive influence of knowledge creation and innovative activity, as captured by patents, on non-farm employment growth during the period 1969-2000. We also find strong evidence of local spatial employment growth spillovers contributing in a positive manner to explaining non-farm employment growth. The key results also hold when we consider subsamples of the study period suggesting our model is quite robust to the time period of analysis.


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