What is Cumulative Causation

The economic importance of the Knowledge Intensive Business Services (KIBS) sector is increasing as its direct share of production grows, and as it increasingly provides knowledge inputs to firms in other sectors within more open innovation strategies. This chapter considers the implications for regional policy. It starts by discussing the nature of KIBS and their role in innovation. It then examines the changing scale of KIBS and the extent to which they are regionally concentrated. Key messages from neoclassical growth theory are then set out on the processes through which KIBS can be expected to contribute to regional economic growth, including discussion of potential cumulative causation processes at regional level. The implications of the theory are drawn out in terms of the types of market failures that policy should seek to address and how it may do so. The question is also posed of whether this is largely a field for regional policy or for national innovation policy. The chapter concludes by identifying some important questions for further research.